STOCKWATCH How Los Angeles area companies fared on the stock market.

Last year was a rough one for investors. There’s no getting around it. While equity and bond prices have drifted higher in the first weeks of 2023, we think the bear market of 2022 has made it a great time to put capital to work. With higher yields, bonds can again provide a source of income and a potential safe haven. At lower valuations, equities look attractive. We believe the combination of higher yields and lower equity multiples means markets today may be offering the best potential long-term returns since 2010.

“Back to Basics,” the title of the 27th annual edition of our Long-Term Capital Market Assumptions, captures our belief that after a year of turmoil, the core principles of investing still hold firm. Once again, the 60/40 (60% equities, 40% bonds) configuration can form the bedrock of portfolios, while alternatives can continue to offer alpha (manager selection skill), inflation protection and diversification.

We turn first to bonds. Central bank policy rates “normalized” swiftly over the past year. In other words, they moved into normal positive territory, away from abnormal negative rates. In our Long-Term Capital Market Assumptions, real return (after inflation) forecasts for most government bonds are positive once again.

Our projected equity returns have risen sharply. Our market equity forecast jumped 360 basis points to 8.40%, and the emerging market equity forecast increased 320 basis points to 10.10%. A year ago, global equities were expensive. Today, we believe stocks are considerably more attractive, but crucially, the underlying businesses are in good shape. Valuations are now close to, or even below, our estimates of fair value.

Even as return forecasts for public stock and bond markets are positive in this year’s Long-Term Capital Market Assumptions, alternatives can still offer benefits that cannot be easily found elsewhere. In the financial alternatives space, our private equity returns increase 180 basis points to 9.90%; hedge fund returns are up between 110 basis points and 220 basis points, depending on the strategy, and direct lending jumps 90 basis points to 7.80%. Across all alternative sectors and strategies, we will likely see a wide range of returns, depending on the individual manager.

We think the bear market of 2022 has made it a great time to put capital to work.

Looking ahead, we see the best environment in a decade for asset class returns, allowing you to refocus on your long-term goals with genuine cause for optimism. Source: J.P. Morgan Private Bank, January 2023. “The 60/40: Why it’s time to go back to basics in investing,” By Monica Issar, Global Head of Multi-Asset and Portfolio Solutions & John Bilton, CFA, Head of Global Multi-Asset Strategy, Multi-Asset Solutions at J.P. Morgan Asset Management