{"id":175114,"date":"2024-05-03T15:17:14","date_gmt":"2024-05-03T12:17:15","guid":{"rendered":"https:\/\/kupitiblog.store\/576r\/global-markets-expected-to-edge-higher-but-us-stocks-may-lag\/"},"modified":"2024-05-03T15:17:14","modified_gmt":"2024-05-03T12:17:15","slug":"global-markets-expected-to-edge-higher-but-us-stocks-may-lag","status":"publish","type":"post","link":"https:\/\/kupitiblog.store\/576r\/global-markets-expected-to-edge-higher-but-us-stocks-may-lag\/","title":{"rendered":"Global Markets Expected to Edge Higher But US Stocks May Lag"},"content":{"rendered":"

The long-term return forecast for the Global Market Index (GMI) edged higher for a third straight month in April. Today\u2019s revised estimate (based on three models defined below) indicates a 7.0% annualized return for the unmanaged benchmark, which holds all the\u00a0major asset classes<\/span> (except cash), according to market weights via a set of ETF proxies. Today\u2019s projection marks a slight increase from the previous month\u2019s outlook<\/span>.<\/p>\n

US stocks are still the outlier for expected return among the various asset classes. The average forecast for American equities is well below the trailing 10-year performance, which looks elevated relative to the historical record. As a result, US equities are expected to generate a substantially softer performance vs. the realized return over the past decade. By contrast, the rest of the major asset classes are still posting performance forecasts above their trailing 10-year results.<\/p>\n

These differences offer a basis for customizing asset allocation strategies vs. the passive GMI mix. As a baseline assumption, GMI is currently projected to generate a long-term 7.0% annualized return, which is moderately above its trailing 6.4% return over the past 10 years.<\/p>\n

GMI represents a theoretical benchmark of the optimal portfolio for the average investor with an infinite time horizon. On that basis, GMI is useful as a starting point for customizing asset allocation and portfolio design to match an investor\u2019s expectations, objectives, risk tolerance, etc. GMI\u2019s history suggests that this passive benchmark\u2019s performance is competitive with most active asset-allocation strategies, especially after adjusting for risk, trading costs and taxes.<\/p>\n

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here<\/u> or remove ads <\/b>.<\/p>\n

It\u2019s likely that some, most, or possibly all of the forecasts above will be wide of the mark in some degree. GMI\u2019s projections, however, are expected to be somewhat more reliable vs. the estimates for its components. Predictions for the specific markets (US stocks, commodities, etc.) are subject to greater volatility and tracking error compared with aggregating the forecasts into the GMI estimate, a process that may reduce some of the errors through time.<\/p>\n

Another way to view the projections above is to use the estimates as a tool for developing expectations for GMI. The forecasts for the underlying asset classes are a necessary component for developing ex-ante GMI data, but are less reliable compared with aggregating the estimates.<\/p>\n

For context on how GMI\u2019s realized total return has evolved through time, consider the benchmark\u2019s track record on a rolling 10-year annualized basis. The chart below compares GMI\u2019s performance vs. the equivalent for US stocks and US bonds through last month. GMI\u2019s current return for the past ten years is 6.4%, which is moderately above the recent low for this time window.<\/p>\n

<\/p>\n

Here\u2019s a brief summary of how the forecasts are generated and definitions of the other metrics in the table above:<\/p>\n

BB:<\/strong>\u00a0The Building Block model uses historical returns as a proxy for estimating the future. The sample period used starts in January 1998 (the earliest available date for all the asset classes listed above). The procedure is to calculate the risk premium for each asset class, compute the annualized return and then add an expected risk-free rate to generate a total return forecast. For the expected risk-free rate, we\u2019re using the latest yield on the 10-year Treasury Inflation Protected Security (TIPS). This yield is considered a market estimate of a risk-free, real (inflation-adjusted) return for a \u201csafe\u201d asset \u2014\u00a0\u00a0Note that the BB model used here is (loosely) based on a methodology originally outlined by Ibbotson Associates (a division of Morningstar).<\/p>\n

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here<\/u> or remove ads <\/b>.<\/p>\n

EQ:\u00a0<\/strong>The Equilibrium model reverse engineers expected return by way of risk. Rather than trying to predict return directly, this model relies on the somewhat more reliable framework of using risk metrics to estimate future performance. The process is relatively robust in the sense that forecasting risk is slightly easier than projecting return. The three inputs:<\/p>\n<\/p>\n<\/p>\n

This model for estimating equilibrium returns was initially outlined in a\u00a01974 paper\u00a0by Professor Bill Sharpe. For a summary, see Gary Brinson\u2019s explanation in Chapter 3 of\u00a0The Portable MBA in Investment.\u00a0I also review the model in my book\u00a0Dynamic Asset Allocation. Note that this methodology initially estimates a risk premium and then adds an expected risk-free rate to arrive at total return forecasts. The expected risk-free rate is outlined in BB above.<\/p>\n

ADJ:<\/strong>\u00a0This methodology is identical to the Equilibrium model (EQ) outlined above\u00a0\u00a0the forecasts are adjusted based on short-term momentum and longer-term mean reversion factors. Momentum is defined as the current price relative to the trailing 12-month moving average. The mean reversion factor is estimated as the current price relative to the trailing 60-month (5-year) moving average. The equilibrium forecasts are adjusted based on current prices relative to the 12-month and 60-month moving averages. If current prices are above (below) the moving averages, the unadjusted risk premia estimates are decreased (increased). The formula for adjustment is simply taking the inverse of the average of the current price to the two moving averages. For example: if an asset class\u2019s current price is 10% above its 12-month moving average and 20% over its 60-month moving average, the unadjusted forecast is reduced by 15% (the average of 10% and 20%). The logic here is that when prices are relatively high vs. recent history, the equilibrium forecasts are reduced. On the flip side, when prices are relatively low vs. recent history, the equilibrium forecasts are increased.<\/p>\n

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here<\/u> or remove ads <\/b>.<\/p>\n

Avg:<\/strong>\u00a0This column is a simple average of the three forecasts for each row (asset class)<\/p>\n

10yr Ret:<\/strong>\u00a0For perspective on actual returns, this column shows the trailing 10-year annualized total return for the asset classes through the current target month.<\/p>\n

Spread:<\/strong>\u00a0Average-model forecast less trailing 10-year return.<\/p>\n<\/p>\n

Source<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The long-term return forecast for the Global Market Index (GMI) edged higher for a third straight month in April. Today\u2019s revised estimate (based on three models defined below) indicates a 7.0% annualized return for the unmanaged benchmark, which holds all the\u00a0major asset classes (except cash), according to market weights via a set of ETF proxies. …<\/p>\n","protected":false},"author":1,"featured_media":176037,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3337],"tags":[],"yoast_head":"\nGlobal Markets Expected to Edge Higher But US Stocks May Lag - BiznesSMI - \u043a\u043e\u0442\u0438\u0440\u043e\u0432\u043a\u0438 \u0432\u0430\u043b\u044e\u0442, \u0430\u043a\u0446\u0438\u0438, \u0444\u043e\u0440\u0435\u043a\u0441, \u0438\u043d\u0434\u0435\u043a\u0441\u044b, \u0430 \u0442\u0430\u043a\u0436\u0435 \u0442\u0435\u0445\u043d\u0438\u0447\u0435\u0441\u043a\u0438\u0439 \u0430\u043d\u0430\u043b\u0438\u0437, \u0433\u0440\u0430\u0444\u0438\u043a\u0438, \u0444\u0438\u043d\u0430\u043d\u0441\u043e\u0432\u044b\u0435 \u043d\u043e\u0432\u043e\u0441\u0442\u0438 \u0438 \u0430\u043d\u0430\u043b\u0438\u0442\u0438\u043a\u0430.<\/title>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"ru_RU\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Global Markets Expected to Edge Higher But US Stocks May Lag - BiznesSMI - \u043a\u043e\u0442\u0438\u0440\u043e\u0432\u043a\u0438 \u0432\u0430\u043b\u044e\u0442, \u0430\u043a\u0446\u0438\u0438, \u0444\u043e\u0440\u0435\u043a\u0441, \u0438\u043d\u0434\u0435\u043a\u0441\u044b, \u0430 \u0442\u0430\u043a\u0436\u0435 \u0442\u0435\u0445\u043d\u0438\u0447\u0435\u0441\u043a\u0438\u0439 \u0430\u043d\u0430\u043b\u0438\u0437, \u0433\u0440\u0430\u0444\u0438\u043a\u0438, \u0444\u0438\u043d\u0430\u043d\u0441\u043e\u0432\u044b\u0435 \u043d\u043e\u0432\u043e\u0441\u0442\u0438 \u0438 \u0430\u043d\u0430\u043b\u0438\u0442\u0438\u043a\u0430.\" \/>\n<meta property=\"og:description\" content=\"The long-term return forecast for the Global Market Index (GMI) edged higher for a third straight month in April. Today\u2019s revised estimate (based on three models defined below) indicates a 7.0% annualized return for the unmanaged benchmark, which holds all the\u00a0major asset classes (except cash), according to market weights via a set of ETF proxies. …\" \/>\n<meta property=\"og:url\" content=\"https:\/\/kupitiblog.store\/576r\/global-markets-expected-to-edge-higher-but-us-stocks-may-lag\/\" \/>\n<meta property=\"og:site_name\" content=\"BiznesSMI - \u043a\u043e\u0442\u0438\u0440\u043e\u0432\u043a\u0438 \u0432\u0430\u043b\u044e\u0442, \u0430\u043a\u0446\u0438\u0438, \u0444\u043e\u0440\u0435\u043a\u0441, \u0438\u043d\u0434\u0435\u043a\u0441\u044b, \u0430 \u0442\u0430\u043a\u0436\u0435 \u0442\u0435\u0445\u043d\u0438\u0447\u0435\u0441\u043a\u0438\u0439 \u0430\u043d\u0430\u043b\u0438\u0437, \u0433\u0440\u0430\u0444\u0438\u043a\u0438, \u0444\u0438\u043d\u0430\u043d\u0441\u043e\u0432\u044b\u0435 \u043d\u043e\u0432\u043e\u0441\u0442\u0438 \u0438 \u0430\u043d\u0430\u043b\u0438\u0442\u0438\u043a\u0430.\" \/>\n<meta property=\"article:published_time\" content=\"2024-05-03T12:17:15+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/kupitiblog.store\/576r\/wp-content\/uploads\/2024\/05\/d9d8933f827b14600de14b1ad5169e1e.png\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"\u041f\u0440\u0438\u043c\u0435\u0440\u043d\u043e\u0435 \u0432\u0440\u0435\u043c\u044f \u0434\u043b\u044f \u0447\u0442\u0435\u043d\u0438\u044f\" \/>\n\t<meta name=\"twitter:data1\" content=\"5 \u043c\u0438\u043d\u0443\u0442\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebSite\",\"@id\":\"https:\/\/kupitiblog.store\/576r\/#website\",\"url\":\"https:\/\/kupitiblog.store\/576r\/\",\"name\":\"BiznesSMI - \\u043a\\u043e\\u0442\\u0438\\u0440\\u043e\\u0432\\u043a\\u0438 \\u0432\\u0430\\u043b\\u044e\\u0442, \\u0430\\u043a\\u0446\\u0438\\u0438, \\u0444\\u043e\\u0440\\u0435\\u043a\\u0441, \\u0438\\u043d\\u0434\\u0435\\u043a\\u0441\\u044b, \\u0430 \\u0442\\u0430\\u043a\\u0436\\u0435 \\u0442\\u0435\\u0445\\u043d\\u0438\\u0447\\u0435\\u0441\\u043a\\u0438\\u0439 \\u0430\\u043d\\u0430\\u043b\\u0438\\u0437, \\u0433\\u0440\\u0430\\u0444\\u0438\\u043a\\u0438, \\u0444\\u0438\\u043d\\u0430\\u043d\\u0441\\u043e\\u0432\\u044b\\u0435 \\u043d\\u043e\\u0432\\u043e\\u0441\\u0442\\u0438 \\u0438 \\u0430\\u043d\\u0430\\u043b\\u0438\\u0442\\u0438\\u043a\\u0430.\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":\"https:\/\/kupitiblog.store\/576r\/?s={search_term_string}\",\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"ru-RU\"},{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/kupitiblog.store\/576r\/global-markets-expected-to-edge-higher-but-us-stocks-may-lag\/#primaryimage\",\"inLanguage\":\"ru-RU\",\"url\":\"https:\/\/kupitiblog.store\/576r\/wp-content\/uploads\/2024\/05\/d9d8933f827b14600de14b1ad5169e1e-1.png\",\"contentUrl\":\"https:\/\/kupitiblog.store\/576r\/wp-content\/uploads\/2024\/05\/d9d8933f827b14600de14b1ad5169e1e-1.png\",\"width\":2466,\"height\":1761},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/kupitiblog.store\/576r\/global-markets-expected-to-edge-higher-but-us-stocks-may-lag\/#webpage\",\"url\":\"https:\/\/kupitiblog.store\/576r\/global-markets-expected-to-edge-higher-but-us-stocks-may-lag\/\",\"name\":\"Global Markets Expected to Edge Higher But US Stocks May Lag - BiznesSMI - \\u043a\\u043e\\u0442\\u0438\\u0440\\u043e\\u0432\\u043a\\u0438 \\u0432\\u0430\\u043b\\u044e\\u0442, \\u0430\\u043a\\u0446\\u0438\\u0438, \\u0444\\u043e\\u0440\\u0435\\u043a\\u0441, \\u0438\\u043d\\u0434\\u0435\\u043a\\u0441\\u044b, \\u0430 \\u0442\\u0430\\u043a\\u0436\\u0435 \\u0442\\u0435\\u0445\\u043d\\u0438\\u0447\\u0435\\u0441\\u043a\\u0438\\u0439 \\u0430\\u043d\\u0430\\u043b\\u0438\\u0437, \\u0433\\u0440\\u0430\\u0444\\u0438\\u043a\\u0438, \\u0444\\u0438\\u043d\\u0430\\u043d\\u0441\\u043e\\u0432\\u044b\\u0435 \\u043d\\u043e\\u0432\\u043e\\u0441\\u0442\\u0438 \\u0438 \\u0430\\u043d\\u0430\\u043b\\u0438\\u0442\\u0438\\u043a\\u0430.\",\"isPartOf\":{\"@id\":\"https:\/\/kupitiblog.store\/576r\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/kupitiblog.store\/576r\/global-markets-expected-to-edge-higher-but-us-stocks-may-lag\/#primaryimage\"},\"datePublished\":\"2024-05-03T12:17:15+00:00\",\"dateModified\":\"2024-05-03T12:17:15+00:00\",\"author\":{\"@id\":\"https:\/\/kupitiblog.store\/576r\/#\/schema\/person\/5d8353a37f91122aa6e3893c3f66436a\"},\"breadcrumb\":{\"@id\":\"https:\/\/kupitiblog.store\/576r\/global-markets-expected-to-edge-higher-but-us-stocks-may-lag\/#breadcrumb\"},\"inLanguage\":\"ru-RU\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/kupitiblog.store\/576r\/global-markets-expected-to-edge-higher-but-us-stocks-may-lag\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/kupitiblog.store\/576r\/global-markets-expected-to-edge-higher-but-us-stocks-may-lag\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"\\u0413\\u043b\\u0430\\u0432\\u043d\\u0430\\u044f \\u0441\\u0442\\u0440\\u0430\\u043d\\u0438\\u0446\\u0430\",\"item\":\"https:\/\/kupitiblog.store\/576r\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Global Markets Expected to Edge Higher But US Stocks May Lag\"}]},{\"@type\":\"Person\",\"@id\":\"https:\/\/kupitiblog.store\/576r\/#\/schema\/person\/5d8353a37f91122aa6e3893c3f66436a\",\"name\":\"Admin\",\"url\":\"https:\/\/kupitiblog.store\/576r\/author\/admin\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","_links":{"self":[{"href":"https:\/\/kupitiblog.store\/576r\/wp-json\/wp\/v2\/posts\/175114"}],"collection":[{"href":"https:\/\/kupitiblog.store\/576r\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kupitiblog.store\/576r\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kupitiblog.store\/576r\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/kupitiblog.store\/576r\/wp-json\/wp\/v2\/comments?post=175114"}],"version-history":[{"count":0,"href":"https:\/\/kupitiblog.store\/576r\/wp-json\/wp\/v2\/posts\/175114\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/kupitiblog.store\/576r\/wp-json\/wp\/v2\/media\/176037"}],"wp:attachment":[{"href":"https:\/\/kupitiblog.store\/576r\/wp-json\/wp\/v2\/media?parent=175114"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kupitiblog.store\/576r\/wp-json\/wp\/v2\/categories?post=175114"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kupitiblog.store\/576r\/wp-json\/wp\/v2\/tags?post=175114"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}