Market Views

2025 Q1 Capital Market Assumptions

By Marco Aiolfi, John Hall & Lorne Johnson

Key Updates in This Quarter's Forecasts

Our long-term outlook for fixed income assets shifted significantly higher from last quarter, coincident with the increase in sovereign
interest rates in Q4 2024. Adjustments to our 10-year annualized return forecasts include:

  • US Aggregate Bonds: Revised to 5.23% from 4.09% last quarter.
  • US Long Treasury Bonds: Revised to 5.84% from 4.26% last quarter.
  • Global Aggregate Bonds Hedged: Revised to 4.56% from 3.85% last quarter.

Our 10-year forecasts for equity markets outside the US continue to exceed those of large-capitalization US equities, primarily attributable to more favorable valuations:

  • US Large-Cap Equities: Forecasted at 5.79%.
  • International Equities ex-US: Forecasted at 8.27%.
  • Emerging Markets Equities: Forecasted at 8.79%.

This quarter's portfolio rebalancing recommendations include:

  • Reduction in US Equity allocation.
  • Reduction in Commodity allocation.
  • Increase in Fixed Income exposure.
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Source: PGIM Quantitative Solutions as of 31 Dec, 2024. Forecasts may not be achieved and are not a guarantee or reliable indicator of future results.
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Source: PGIM Quantitative Solutions as of 31 Dec, 2024. Forecasts may not be achieved and are not a guarantee or reliable indicator of future results.

Note: Forecasts may not be achieved and are not a guarantee or reliable indicator of future results

References

Marco Aiolfi

References

John Hall

References

Lorne Johnson