For investors, 2019 could prove to be a symbolic, possibly even seminal year. Should the U.S. expansion persist to the middle of 2019, it will set a new record for the length of a U.S. cycle; still well short of Australia's 27-year (and counting) expansion, but a notable record nonetheless. That is true especially when we consider some of the paradoxes that characterize this cycle.
Developed market policy rates are rising, yet remain below prior cycle troughs just as G7 unemployment rates are at 40-year lows. This S&P 500 bull market is the longest on record with trough-to-peak gains almost twice the bull market average of the last 50 years, but at the same time global equities have delivered gains about 6% shy of prior bull market averages. And just as technology is eroding geographic boundaries and functional barriers, trade protectionism may be forcing globalization into retreat, at least in the short term.
Against this backdrop, we are launching our 2019 long-term capital market assumptions. Presenting capital market estimates for more than 50 asset and strategy classes, we examine how some of the structural factors affecting economies today are likely to drive asset returns over a 10- to 15-year investment horizon.
This year's edition explores the challenges of late-cycle investing in a long-term context. Navigating late cycle demands that investors think and manage outside the mean. It may also require new portfolio construction tools that account for the wider spectrum of risks that investors will need to assume to drive future returns.