Expected returns for the next 10 years amid elevated inflation and resilient global growth
KEY TAKEAWAYS
- Markets are beginning to adjust to a new paradigm after two years of rising rates and persistent inflation
- Our updated capital markets assumptions reflect our view that growth will remain resilient but valuations will normalize given higher interest rate expectations.
- We believe U.S. equity valuations will be pulled lower, while fixed income will benefit from higher starting yields. By comparison, real assets appear more reasonably priced are well positioned to generate substantially stronger return
This is the third edition of our annual capital market assumptions (CMA), which outline our view of macroeconomic conditions and financial market expectations for the next 10 years. This process helps investors consider their approach over a strategic time horizon. We survey the current economic environment, alongside asset prices and prevailing valuations, to develop baseline projections of returns, volatility and correlations.
Markets are beginning to adjust to a new paradigm after two years of rising rates and persistent inflation. Our updated capital market assumptions reflect our view that growth will remain resilient but valuations will normalize given higher interest rate expectations.
Consider the last decade. Global equities delivered annual total returns of nearly 10%, while U.S. equities returned more than 12%. Entering 2025, the S&P 500 has delivered gains exceeding 25% in each of the previous two years, and valuations are reaching levels not seen since the dot-com bubble. In addition, the correlation between stocks and bonds is the highest it has been since the early 1990s. Current market conditions suggest a reversal of fortunes.
We believe the next 10 years are likely to be defined by higher (more normal) yields alongside increased economic volatility and geopolitical uncertainty. Those headwinds are potentially tempered by technology- led productivity gains and economic growth, likely driven by continued investment in infrastructure and opportunities presented by changing trade patterns.
Our view of rates is informed by this global growth outlook combined with inflation that remains above target. Inflation is likely to remain sticky given higher wages, a turn away from globalization, geopolitical friction, and more elevated commodity prices. This is reflected in our assumption of a 3.25% federal funds rate and “fair value” of the 10-year Treasury yield around 4.5%.
From our perspective, higher interest rates play an important role in driving expected returns across markets. Historical patterns show that initial valuation levels strongly influence subsequent performance.
EXHIBIT 1
3-year rolling correlation of MSCI World and U.S. Treasuries
As of 12/31/2024. Source: Bloomberg, Cohen & Steers.
Past performance is no guarantee of future results. Correlation coefficients are based on monthly data and measure the degree to which the returns of two assets move together. Correlations vary from -1.0 (perfect inverse relationship) to 1.0 (perfect synchronization).
Accordingly, we believe U.S. equity valuations will be pulled lower, while fixed income will benefit from higher starting yields. By comparison, real assets appear more reasonably priced following a period of underperformance, and, in our assessment, are well positioned to generate substantially stronger returns.
As we’ve stated for the past two years in our CMA, we believe portfolio construction will increasingly reward broader diversification. While investors often gravitate toward recent high performers, we advocate taking a longer view.
The appeal of current market leaders is understandable, particularly given that many investors’ experience has been limited to an era of low rates, stable inflation and consistently robust stock performance. However, our experience demonstrates that building portfolios based on past performance alone is a recipe for subpar returns and missed opportunities in evolving markets.
EXHIBIT 2
Inflation expected to stay above trend
As of 12/31/2024. Source: Bloomberg, Cohen & Steers.
Macroeconomics
We expect real U.S. gross domestic product (GDP) growth to average 1.9% annually and global GDP growth to average 3.4% annually. Emerging markets are expected to continue underperforming non-U.S. developed markets in coming years. Global growth is supported by large emerging market economies continuing to grow above 4%, non-U.S. developed markets benefiting from new investment activity related to infrastructure and defense, and the U.S. experiencing productivity gains from AI and deregulation.
Fixed income
Following an aggressive hiking campaign by the U.S. Federal Reserve, rates have come off their 2024 peak. Higher starting yields should support fixed income returns over the next decade. Our assumption is for annual U.S. Treasury returns to average 4.6%, up from our prior estimate of 3.9%.
Despite historically tight spreads, expected annual returns for investment-grade corporates and preferreds are 5.1% and 6.1%, respectively. Broadly, we are increasing our long-term return expectations for U.S. aggregate bond returns from 4.3% to 4.8%.
Equities
U.S. equities posted total returns greater than 25% for the second year in a row, as valuations rose to levels last seen near the turn of the millennium. As a result, we have reduced our 10-year U.S. equity return assumption to 5.8%.
We believe valuations will be drawn lower over the decade, with international equities—both developed and emerging—outperforming and beginning to close the performance gap.
Real assets
Valuations for real assets categories are all either neutrally or attractively valued. We expect average returns for U.S. and global REITs to each be 7.8%, with improving property fundamentals in a higher-rate environment. Global listed infrastructure is forecast to return 7.6%.
We expect that global growth will drive natural resource returns to an 8.4% annual average. Commodity return assumptions are 5.9%.
The following analysis explores these return expectations and the key assumptions that inform them.
Fixed income
The higher starting point for interest rates creates a strong foundation for fixed income returns. Though we believe the neutral fed funds rate will be 3.25%, we project returns on Treasuries of 4.6% over the next decade, roughly in line with starting yields.
4.6% Expected 10-year annualized returns for U.S. Treasuries
A pro-business policy climate and a generally strong corporate environment create an attractive starting point for corporate credit. We project that investment-grade corporate debt returns will average 5.1% over the decade, with high-yield debt returning an average of 6.1%. These are modestly higher projections than we made last year, again based off more attractive yields today. Given the non-linear nature of spread moves and the low level of the starting point, we acknowledge spreads could go intermittently wider during the 10-year window to reflect a rise in default risk. However, we believe the full-cycle fair value spread is not too far from today’s level.
Preferred securities led fixed income performance last year, driven by narrowing credit spreads and discounted valuations. Looking ahead, they remain well positioned, offering attractive yields of 6–8% among investment- grade options. Considering last year’s spread compression, we are reducing our long-term outlook for preferred returns from 6.4% to 6.1%. While credit spreads are historically tight, strong fundamentals in the financial sector (particularly banks’ record capital levels and solid earnings) provide a stable foundation.
EXHIBIT 3
Higher starting yields support fixed income returns
Expected annual returns vs. prior-decade annual returns
As of 12/31/2024. Source: LSEG Datastream, Bloomberg, Cohen & Steers.
Past performance is not a guarantee of future results. Forecasts are inherently limited. There is no guarantee that any market forecast will be realized.
Equities
Global equity returns look poised to converge over the next decade, with non-U.S. equities outperforming domestic equities. In the U.S., strong nominal growth should sustain revenue expansion, though margin pressure could weigh on earnings. However, more importantly, some PE multiple compression suggests more modest returns of 5.8% annually, marking a significant decline from the 12.5% achieved over the previous decade. Investors should expect earnings growth and dividend yield to account for all of the realized total return.
5.8% Expected 10-year annualized returns for U.S. equities
International developed markets offer a different proposition. While these markets face headwinds from declining working-age populations and lower productivity, their higher dividend yields and more attractive valuations position them to exceed U.S. equities—a notable shift from their historical underperformance. We believe non-U.S. developed market equities could achieve 7.0% average annual growth over the next decade.
Emerging markets are expected to continue underperforming, relative to non-U.S. developed markets, in coming years. Despite stronger GDP and earnings growth, a lower dividend yield and modest share dilution over time will likely weigh on prospective returns. Even so, we believe emerging markets will close their performance gap with U.S. equities in the coming decade, with average annual returns of 6.3%—though this will be primarily driven by the weaker pace of U.S. market returns.
EXHIBIT 4
International markets poised to close performance gap
Expected annual returns vs. prior-decade annual returns
As of 12/31/2024. Source: LSEG Datastream, Bloomberg, Cohen & Steers.
Past performance is not a guarantee of future results. Forecasts are inherently limited. There is no guarantee that any market forecast will be realized.
Real assets
As noted earlier, we expect an economic backdrop of increased macro volatility and elevated inflation. These factors (particularly those contributing to higher inflation) are collectively expected to support real assets returns over the long term.
Looking across the real assets categories, we expect opportunities to arise from supply/demand imbalances, particularly in markets where structural underinvestment intersects with accelerating demand from rising populations, energy transition and technological advancement. Even without multiple expansion, current valuation levels appear reasonable. While there will be dispersion among real assets, we see a meaningfully better return backdrop going forward than has been the case for most of the period following the global financial crisis, when inflation surprised to the downside for over a decade.
8.4% Expected 10-year annualized returns for natural resource equities
Natural resource equities lead with expected returns of 8.4%, supported by commodity price strength, current valuations and strong free cash flow growth. Global listed REITs and U.S. listed REITs follow closely, with projected returns of 7.8% each. Global property valuations have experienced a reset, and fundamental performance has continued to improve. Global listed infrastructure is projected to return 7.6%. Infrastructure returns are supported by attractive starting valuations and growth potential—in part, from ongoing electrification of industry and rapid data center growth—as well as by their defensive characteristics in a more volatile macroeconomic environment.
We expect opportunities to arise from supply/demand imbalances, particularly in markets where structural underinvestment intersects with accelerating demand from rising populations, energy transition and technological advancement.
Our commodities outlook of 5.9% average annual returns over the decade is supported by several long-term structural factors. Supply constraints stemming from years of underinvestment across many commodity sectors are coinciding with increasing demand pressures from energy transition initiatives and evolving geopolitical dynamics. We expect gold to return 3%, in line with our long-term inflation forecast.
While the long-term outlook is positive, investors should remain mindful of sector-specific challenges, including potential energy market oversupply, ongoing weakness in China’s property market, and geopolitical tensions affecting European real estate. However, these risks appear manageable over a long-term investment horizon, particularly given the attractive valuations and strong secular growth drivers across the real assets universe.
EXHIBIT 5
Real assets benefit from starting valuations and secular growth drivers
Expected annual returns vs. prior-decade annual returns
As of 12/31/2024. Source: LSEG Datastream, Bloomberg, Cohen & Steers. Past performance is not a guarantee of future results. Forecasts are inherently limited. There is no guarantee that any market forecast will be realized.
Full 10-Year Capital Market Assumptions detail
Expected annual returns vs. prior-decade annual returns
Past performance is not a guarantee of future results. Forecasts are inherently limited. There is no guarantee that any market forecast will be realized. (1) 2014–2023 performance (1/1/2014–12/31/2023) represented by the following: Fixed income: Cash: Bloomberg U.S. Long Government/Credit Index. TIPS: U.S. Treasury Inflation Notes Index. Treasuries: Bloomberg U.S. Treasury 7-10 Year Index. I.G. corporate bonds: Bloomberg U.S. Aggregate Corporate Index. High-yield bonds: Bloomberg U.S. Corporate Investment Grade Index. Preferred securities: ICE BofA Fixed Rate Preferred Securities Index. Long-term Treasuries: Bloomberg U.S. Treasury Long Bond Index. Long-term corporate: Bloomberg U.S. Long Treasury Index. U.S. equities: S&P 500 Total Return Index. Global equities: MSCI ACWI Total Return Index. EAFE: MSCI EAFE Total Return Index. Emerging markets: MSCI Emerging Markets Total Return Index. Real assets: U.S. REIT: FTSE Nareit Equity REITs Index. Global REIT: FTSE EPRA Nareit Developed Real Estate Index. Infrastructure: UBS Global 50/50 Infrastructure & Utilities Index (net) through March 31, 2015, and the FTSE Global Core Infrastructure 50/50 Net Tax Index for periods thereafter. Natural resource equities: S&P Global Natural Resource Equities Index. Commodities: Bloomberg Commodity Total Return Index. Private real estate: NCREIF ODCE Index. Volatility is represented by standard deviation, which is a statistical measure of the historical volatility of a returns; the higher the number, the greater the risk.
Expected asset class correlations in detail
Forecasts are inherently limited. There is no guarantee that any market forecast will be realized. Correlation coefficients are based on monthly data and measure the degree to which the returns of two assets move together. Correlations vary from -1.0 (perfect inverse relationship) to 1.0 (perfect synchronization).
ABOUT THE AUTHORS
Jeffrey Palma, Senior Vice President, is Head of Multi-Asset Solutions, responsible for leading the firm’s asset allocation strategy and macroeconomic research.
John Muth, Senior Vice President, is the firm’s Macro Strategist responsible for global economic outlooks and macro research across the firm.
FURTHER READING
3 Reasons to own preferred securities today
We believe an exceptional buying opportunity for preferred securities may exist today.
3 Reasons to own global listed infrastructure today
Attractive valuations, an advantageous macro environment and high private investor interest set the stage for potentially strong total returns from listed infrastructure.
Tariffs, market volatility and the implications for real assets
Real assets have less exposure to tariffs relative to many other asset classes, generally predictable earnings, and are well positioned in a new market cycle.
IMPORTANT: The capital market assumptions regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The expectations and other information are for educational and illustrative purposes only. Hypothetical performance has inherent risks and limitations, and prospective investors should not place undue reliance on any such information. Because of Cohen & Steers’ investment focus on real assets, Cohen & Steers will benefit from increased interest in these asset classes, and you should keep this conflict in mind when evaluating the capital market assumptions. Other investments may have characteristics similar or superior to real assets.
Additionally, Cohen & Steers may make investment decisions that are inconsistent with the capital market assumptions or any views expressed herein. Cohen & Steers may also develop and publish material that is independent of, and different than, the capital market assumptions or any views expressed herein.
The intent of the capital market assumptions is not to predict or project future returns of any investment, asset class or portfolio. Instead, the purpose of the capital market assumptions is to express Cohen & Steers’ view of expected general asset class returns of the period shown, which may be incorrect, potentially materially so, and are subject to change without notice.
By receiving this communication, you agree with and acknowledge the limitations of the capital market assumptions, the associated conflicts and the restrictions on use described herein.
The information presented is provided as educational and is not intended to be (and should not be) relied upon as a recommendation to invest in any specific security or asset class or to adopt any investment strategy, or as the primary basis for any investment decisions. Prior to making a decision to invest in any security or asset class, you should consult with your financial professional to determine whether the decision is appropriate for you. Return, yield and volatility expectations are based on Cohen & Steers’ analysis, are not a guarantee of future performance, and do not represent the past or projected performance of any fund, investor or other account managed by Cohen & Steers.
The assumptions used to form the basis for the information presented are as of the date shown and are subject to change. Projected returns, yield, volatility and liquidity are subject to many factors that are uncertain and outside the control of Cohen & Steers, and analysis may be subject to error. Projected outcomes depend on economic events, which (even if they occur) could result in outcomes that could be materially higher or lower than expected. The performance expectations displayed represent the midpoint possible expectations within a broader range of possible outcomes, some of which are negative. Actual outcomes could be materially lower than the central expectations.
An investor cannot invest directly in an index, and index performance does not reflect the deduction of any fees, expenses or taxes. Index comparisons have limitations, as volatility and other characteristics may differ from a particular investment. There can be no assurance that any trends or correlations shown herein will continue in the future.
The information presented is not being provided in a fiduciary capacity and does not account for the age, other investments, financial situation, tax status, investment objectives, investment experience, investment time horizon, liquidity needs or risk tolerance of any investor. We believe the information to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of appropriateness for determining any investment strategy. Cohen & Steers does not provide investment, tax or legal advice and will not advise you on your investment decisions. Investors should consult with their investment, tax or legal professional regarding their individual circumstances prior to making any investment decisions.
Criteria and Methodology
Inputs to these expectations include return, volatility and correlation across asset classes. Assumptions are generally not updated on a real-time basis; therefore, results may vary with each use and over time. All such expectations are subject to change. Yields on all markets are based on levels derived at year-end 2024.
Expectations for returns are driven by a range of factors. Within fixed income, forecasts for interest rates are determined at various maturities based on economic growth, inflation, and policy expectations as well as factors such as the shape of the yield curve, the expected level of real interest rates and inflation breakevens, and credit spreads. These interest rates are used to compute expectations for total returns, accounting for the starting point of bond yields, capital gain/loss based on assumption of benchmark duration, and yield. Treasury bond returns are based on expectations for the level of inflation, the path of future short-term rates, and an expectation for the slope of the yield curve. Credit returns, including corporate, high yield and preferreds, are based on expectations for fair value spread levels along with adjustments for historical downgrade and default risk through an economic cycle.
For equities, including listed real assets, various factors contribute to total return expectations. Expectations are based on estimates for earnings growth and fair value multiples. Earnings growth expectations are driven by anticipated profitability and payout ratios, while valuation multiples are based on expected interest rates, risk premiums and growth rates. Changes in valuations are driven by forecasts of interest rates, risk premiums, growth and profitability. Dividend yield also contributes to total return.
For commodities, we forecast investable returns on commodity total returns by coming up with expectations on index-level spot returns, roll returns and collateral returns. Spot returns are a function of inflation and expectations for supply/demand/inventory balances, roll returns are a function of the typical shape of the commodity futures curve, and collateral returns are a function of our forecast for short-term interest rates.
Volatility assumptions are driven by historical experience as well as expectations for changes related to growth, inflation, policy, etc. Volatility for private real estate is adjusted (per academic work by Geltner) to more accurately reflect economic volatility, correcting for the autocorrelation/smoothing that exists in private RE returns. Correlations reflect historical correlations.
Forward-looking volatility and correlation assumptions are based on historical outcomes. Volatility data use the full available data history available for each respective market. Correlation data use a common starting point. Future economic and market conditions could result in different experiences in coming years.
Due to the illiquid nature of private real estate, private real estate returns generally exhibit a pattern that understates the level of volatility that would be realized if assets were valued more frequently. We used a statistical adjustment (Geltner, David. 1993. “Estimating Market Values from Appraised Values without Assuming an Efficient Market”) to adjust for the first-order autocorrelation in the appraisal-based private real estate return series to arrive at an estimate that more accurately reflects the true volatility of private real estate returns for the time periods shown. This adjustment is also applied to calculations of private real estate correlation to other asset classes. Estimates are inherently uncertain and may not reflect actual outcomes. Utilizing different factors or assumptions in conducting the statistical analysis may result in materially different estimates than those shown. Investing in private real estate involves substantial risk, including the entire loss of an investment.
Certain inputs into the capital market assumptions have been obtained from sources that Cohen & Steers believes to be reliable as of the date presented; however, Cohen & Steers cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content herein and inputs into the capital market assumptions are current as of the date of publication (or such earlier date as referenced herein) and are subject to change without notice. Cohen & Steers does not make any express or implied warranties or representations as to the inputs into the capital market assumptions or the completeness or accuracy of its results.
Risks of investing:
Risks of equity investing. Common stocks are subject to special risks. Although common stocks have historically generated higher average returns than fixed income securities over the long term, common stocks also have experienced significantly more volatility in returns. Common stocks may be more susceptible to adverse changes in market value due to issuer-specific events or general movements in the equities markets. Common stock prices fluctuate for many reasons, including changes to investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, as well as the occurrence of political or economic events affecting issuers.
Risks of investing in fixed income securities. Fixed income securities are subject to the ability of an issuer to make timely principal and interest payments, changes in interest rates, the creditworthiness of the issuer, and general market liquidity.
In a rising interest rate environment, bond prices may fall, and this may result in periods of volatility and increased portfolio redemptions. In a declining interest rate environment, fixed income securities may generate less income. Longer-term securities may be more sensitive to interest rate changes. High yield securities (“junk bonds”) are lower-rated securities that may have a higher degree of credit and liquidity risk. U.S. Treasury securities are backed by the full faith and credit of the U.S. government as to payment of principal and interest.
Risks of investing in real estate securities. The risks of investing in real estate securities are similar to those associated with direct investments in real estate, including falling property values due to increasing vacancies or declining rents resulting from economic, legal, political or technological developments; lack of liquidity; limited diversification; and sensitivity to certain economic factors such as interest rate changes and market recessions.
Risks of investing in global infrastructure securities. Infrastructure issuers may be subject to regulation by various governmental authorities and may also be affected by governmental regulation of rates charged to customers; operational or other mishaps; tariffs; and changes in tax laws, regulatory policies and accounting standards.
Risks of investing in foreign securities. Foreign securities involve special risks, including currency fluctuations, lower liquidity, political and economic uncertainties, and differences in accounting standards. Some international securities may represent small- and medium-sized companies, which may be more susceptible to price volatility and may be less liquid than larger companies.
Risks of investing in the energy sector. A downturn in the energy sector of the economy could have a larger impact on a strategy concentrated in the energy sector than on a strategy that does not concentrate in the sector. In addition, there are several specific risks associated with investments in the energy sector, including commodity price risk, depletion risk, supply and demand risk, interest rate transaction risk, affiliated party risk, limited partner risk, and risks of subordinated MLP units. MLPs that invest in the energy industry are highly volatile due to significant fluctuation in the prices of energy commodities as well as political and regulatory developments.
Risks of investing in commodities. An investment in commodity-linked derivative instruments may be subject to greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity- linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, counterparty risk, leverage risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. No representation or warranty is made as to the efficacy of any particular strategy or fund or the actual returns that may be achieved. Futures trading is volatile and highly leveraged, and it may be illiquid. Investments in commodity futures contracts and options on commodity futures contracts have a high degree of price variability and are subject to rapid and substantial price changes. Such investments could incur significant losses. There can be no assurance that the options strategy will be successful. The use of options on commodity futures contracts is to enhance risk-adjusted total returns. The use of options, however, may not provide any, or may provide only partial, protection from market declines. The return performance of the commodity futures contracts may not parallel the performance of the commodities or indexes that serve as the basis for the options it buys or sells; this basis risk may reduce overall returns.
Risks of investing in natural resource equities. The market value of securities of natural resource companies may be affected by numerous factors, including events occurring in nature, inflationary pressures and international politics. If a strategy invests significantly in natural resource companies, there is the risk that the strategy will perform poorly during a downturn in the natural resource sector.
Risks of investing in preferred securities. Investing in any market exposes investors to risks. In general, the risks of investing in preferred securities are similar to those of investing in bonds, including credit risk and interest rate risk. As nearly all preferred securities have issuer call options, call risk and reinvestment risk are also important considerations. In addition, investors face equity-like risks, such as deferral or omission of distributions, subordination to bonds and other more senior debt, and higher corporate governance risks with limited voting rights. Risks associated with preferred securities differ from risks inherent with other investments. In particular, in the event of bankruptcy, a company’s preferred securities are senior to common stock but subordinated to all other types of corporate debt. It is important to note that corporate bonds sit higher in the capital structure than preferred securities and therefore, in the event of bankruptcy, will be senior to the preferred securities. Municipal bonds are issued and backed by state and local governments and their agencies, and the interest from municipal securities is often free from both state and local income taxes. Treasury securities are issued by the U.S. government and are generally considered the safest of all bonds since they are backed by the full faith and credit of the U.S. government as to timely payment of principal and interest. Preferred securities may be rated below investment grade or may be unrated. Below-investment-grade securities or equivalent unrated securities generally involve greater volatility of price and risk of loss of income and principal, and they may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher-grade securities.
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