Key Points

  • As we enter 2020, a new decade, investment managers, economists, market pundits, and the like naturally turn to making all types of forecasts for the years ahead. In this article we offer our take on the difference between empirically based investment forecasts and “nowcasts,” the latter often touted and often wrong.
  • Using forward-looking data and our proprietary methodology, we discuss our expected returns for the next decade of core bonds and equities as well as real-return asset classes across the global markets and compare these return forecasts to historical returns.
  • The next 10 years appear to offer much lower returns than the past decade delivered, with emerging market equities at the high end of expectations, sporting an annualized 6.8% real return, and long-dated US Treasuries set to substantially disappoint with an annualized expected real return of −1.3%.

Tick-tock (or TikTok, depending on one’s age group) says the clock, as we bid goodbye to 2019 and welcome 2020. Another year-end, and in this case, another decade is filed away. For those of us in the money management business, this is a time to reflect on what the last decade has taught us about capital markets. At the same time, a loud buzz is building among media pundits and market prognosticators who are offering a flood of economic and investment forecasts and predictions not only for the year ahead, but also for the decade ahead. This buzz includes a lot of “nowcasting.”

Nowcasting in economics refers to a legitimate estimate of an economic measure, such as quarterly GDP growth, which is based on currently available interim data in lieu of waiting for the final data that will be used for the official result. When applied to capital markets, nowcasting is more often a cogent explanation of what has happened, but when presented by pundits, financial media, and market prognosticators as if it were a forecast of the future, it is not at all helpful. Nowcasting is shockingly common and uncommonly dangerous.

Shouldn’t we read market analysis actively rather than passively to distinguish insightful analysis from uninstructive noise? A colleague would sometimes read with a Sharpie in hand and black out any content he deemed to be the latter, happily redacting for himself as much as 80% of any material he read. We will briefly describe what we believe accounts for the vast majority of the forecasts worthy of the “Sharpie treatment.” When you know how to spot it, your brain is in for some rather delightful uncluttering.

Having made room for helpful information, we will turn our attention to what we believe may be helpful forecasts as we enter the 2020s. And we conclude by giving you an opportunity to decide which recent reports should be properly categorized as news, forecasts, or nowcasts.