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U.S. equities approaching their ceiling; credit and emerging markets have some room

J.P. Morgan Asset Management (JPM) reduced its return expectations for U.S. equities in its 2018 long-term capital markets assumptions while increasing its expectations for U.S. bond performance. A significant theme was the cyclical factor of the current bull market and how equity markets, particularly U.S. equities, were nearing their mature stage. In its comments, the asset manager points to high U.S. equity valuations and growing margins as negatives to investors in the short term. But long-term views were positive, pointing to technological innovations that will continue to improve productivity. Dividends and buybacks are expected to drive developed market equity returns, with emerging markets a source of returns for investors looking for better capital growth.

Looking to the bond markets, JPMAM sees opportunity in credit markets and emerging market debt, with government debt facing headwinds amid rising interest rates and the anticipated rollback of central bank balance sheets.