President Trump’s second term has thus far been defined by aggressive trade policies that have roiled financial markets and driven global economic uncertainty. Concerns surrounding U.S. tariff policy has begun to ripple through the global economy, prompting firms to reassess business strategies and stockpile inventory ahead of anticipated tariffs. Despite this near-term volatility, PGIM Quantitative Solutions’ Multi-Asset team left its 10-year U.S. GDP growth forecast roughly unchanged at around 2.1%. For Developed Markets outside the U.S., the 10-year expectation for real GDP growth is 1.2%, while for Emerging Markets, higher nominal GDP growth relative to Developed Markets is expected to result in long-run nominal earnings growth of 6.0%.
KEY UPDATES IN THIS QUARTER'S FORECASTS
The Multi-Asset team’s long-term outlook for fixed income assets is mixed, with sovereigns somewhat higher and credits somewhat lower as a rally in risk assets drove credit spreads lower:
- U.S. Aggregate Bonds: Unchanged at 4.5%.
- U.S. Long Treasury Bonds: Revised to 5.0% from 4.7% last quarter.
- U.S. High Yield Bonds: Revised to 4.4% from 4.9% last quarter.
The 10-year forecasts for equity markets declined across regions as an 11.7% gain in global equities last quarter weighed on valuations:
- U.S. Large-Cap Equities: Revised to 5.8% from 6.2% last quarter.
- International Equities ex-U.S.: Revised to 7.3% from 7.9% last quarter.
- Emerging Markets Equities: Revised to 8.4% from 9.0% last quarter.
This quarter’s portfolio rebalancing recommendations include:
- Increase in U.S. Aggregate Bond allocations.
- Reduction in U.S. High Yield allocations.
- Increase in U.S. REITs exposure.
Forecasts may not be achieved, subject to change and are not a guarantee or reliable indicator of future results.
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