Investors have enjoyed economic stability and positive market returns for years, but stretched valuations and a changing macroeconomic backdrop suggest a change is coming.

As our colleagues detailed in the essay “Pivot Points,” which summarized our views from our Secular Forum in May, there are potential catalysts for change on the horizon. We discuss those factors and other secular themes in this section, and in the next section we will update our nearer-term views for asset allocation in 2017, including a key change: our move to a more defensive stance. But first, as a quick reminder to readers, the goal of our annual Secular Forum is to determine our outlook for the next three to five years, allowing us to position portfolios for long-term shifts in global trends and asset valuations. At the forum, we debated and analyzed potential outcomes related to the following pivot points:

Monetary policy: We expect Fed balance sheet and policy rate normalization, but less than many think, with a lower New Neutral destination for the fed funds rate. We expect the European Central Bank (ECB) to follow with a couple of years’ lag.

Fiscal policy: We expect that any U.S. fiscal package that passes will be tilted to tax cuts, but light on reform; we see limited fiscal space in Europe.

Trade policy: We expect the U.S. to focus on bilateral deals (e.g., China, NAFTA) and aggressive use of existing authority within the WTO.

Exchange rate and geopolitical policies: Amid populist movements in Europe and beyond, we expect the euro to survive and Italy to remain in the eurozone. The Chinese yuan is likely to grind weaker.

While the direction of some of these policy pivots may be known, the path that the policies actually take, their impact on the global economy and markets and their ultimate destination are today all highly uncertain. Although we don’t foresee an imminent recession, we estimate its chances are roughly 70% in the next three to five years.