Mediocre Returns Lie Ahead: Asset Managers

Morningstar forecast a 0.10% decline in U.S. stocks over the medium term. Research Affiliates forecast a 2% gain for U.S. large cap stocks. The remaining three firms forecast yearly gains ranging from about 4% to 5.7%.

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Most of the firms had lowered their forecasts from Benz’s last forecast compilation in April. (JPMorgan was not included in that published report, but Benz notes it has reduced its return expectations for U.S. stocks due to higher valuations.)

Benz admits that “predicting the market’s direction, especially over the short term is tricky, and some investors might be inclined to dismiss asset return forecasts altogether.” But she stresses their “mission-critical” importance when setting up financial plans, using specific savings rates and  time horizons. 

“Low return expectations for U.S. stocks and bonds are a key reason that retirement researchers like Wade Pfau believe that new retirees should be conservative with their withdrawal percentages,” writes Benz.

Firms’ forecasts for U.S. bonds ranged from BlackRock’s forecast of roughly 0.80% to J.P Morgan’s forecast of 2.5%, which focused on investment grade corporate bonds.

JPMorgan is even more optimistic about returns for high yield bonds, 4.8%, and emerging market hard currency debt, 5.2%, according to Benz.