J.P. Morgan Long-Term Capital Market Assumptions

Each year, J.P. Morgan comes out with its long-term capital market assumptions (LTCMAs), which cover a 10-15 year horizon.

These cover a range of projections to help think through what kind of returns are expected and what they mean for strategic allocation decisions.

Key Takeaways – J.P. Morgan Long-Term Capital Market Assumptions

• These are 10-15 year average forecasts, not guarantees. 
  • They show a midpoint of the distribution, not a promise.
• Private equity (~10%) and value-added real estate (~10%) are expected to deliver the highest long-term returns.
  • But they come with higher risk (notably leverage) and less liquidity.
• Core real estate and infrastructure look strong on a return-per-risk basis. They provide income and some inflation protection.
• US stocks (~6-7%) and international stocks (~7-8%) have solid but more moderate expected returns than in the past decade.
• Bonds are more attractive again. Intermediate Treasuries (~4%) now offer meaningful yield after years of near-zero rates, with small real growth.
• Inflation volatility is a material component of the current macro paradigm. Bonds alone may not hedge everything, so adding real assets (i.e., assets that exist/can exist outside the financial system) or gold can help.
• The US dollar may weaken, which supports international diversification. 
• One example strategic asset allocation decision is to move from simple “60/40” to a more diversified “60/40+” portfolio with global exposure and alternatives.
• For a full list of expected returns and volatilities, please see the Appendix to this article.

Top 5 Opportunities in J.P. Morgan’s LTCMAs

Note that these forecasts are simply averages in a distribution.

Point forecasts are generally not appropriate when discussing financial returns, because financial returns are a probabilistic matter.

But it gives us a midpoint to understand rather than knowing a range or distribution.

Private Equity (USD)

Private equity carries an expected return of 10.2% with volatility of 19.78%.

That makes it the highest-return major asset class in the long-term forecasts.

Even after strong public equity performance in recent years, private equity remains one of the best return drivers in a diversified portfolio.

Part of this is due to its illiquidity because many can’t access the asset class, which compresses prices, all else equal.

Another element is leverage.

The report also places private equity near the top in risk-adjusted rankings. In other words, its return per unit of risk remains competitive relative to public equities.

For long-horizon market participants who can tolerate illiquidity, it a quality core growth engine within a “60/40+” or pension fund type of framework.

US Real Estate: Core and Value-Added

US core real estate is projected to return 8.2% with volatility of 11.39%, while value-added real estate carries an expected return of 10.1%.

The difference has to do with the higher operational and development risk embedded in value-added strategies.

What are these value-added strategies?

For example:

• Renovating outdated buildings to raise rents
• Repositioning properties (e.g., office to residential)
• Improving management or lease structures
• Developing new space or expanding existing assets
• Fixing operational inefficiencies

The report emphasizes real assets as strong sources of risk-adjusted returns, not just nominal yield.

Real estate provides what the authors describe as “inflation gearing,” meaning property cash flows and asset values tend to adjust upward when inflation rises – albeit imperfectly since real estate is more rate- and credit-sensitive than inflation-sensitive.

In terms of the macro picture, we’ve entered a chapter of greater fiscal activism and higher inflation volatility. As such, real estate gets a vote in J.P. Morgan’s view as both a return enhancer and a portfolio stabilizer.

Listed Real Estate (US REITs)

US REITs are expected to generate 8.8% returns with 17.40% volatility.

While more volatile than private core real estate (the most obvious reason being they’re liquid), REITs offer daily liquidity and public market access.

The key advantage is that REITs combine equity-like upside with exposure to tangible assets.

Plus a contractual obligation to pay out 90% of their annual taxable income to shareholders in the form of dividends.

For those unable to allocate heavily to private real estate due to liquidity constraints, deal size minimums, or other factors, REITs can be a practical substitute.

They also tend to benefit from improving real estate fundamentals and can participate in inflation-linked income growth.

Emerging Markets Equities (USD) with FX Tailwinds

Emerging market equities are forecast to return 7.8% with volatility of 20.93%.

On the surface, that return is only modestly above developed international market.

But the report emphasizes an important driver: currency effects.

Currency is a separate return stream in a portfolio. And having other FX exposure in your portfolio is generally a good thing to reduce dependency.

J.P. Morgan projects relative strength in the Chinese yuan and a broader weakening US dollar over the long term.

For US-based investors holding unhedged international assets, currency appreciation can meaningfully improve returns.

In this framework, emerging markets aren’t just a growth allocation, but also a matter of currency diversification as dollar dominance is expected to fade over time due to persistent and growing deficits.

Duration Is “Back”: Treasuries and Inflation Hedges

After a decade of ultra-low yields, long-duration bonds now offer more compelling return potential.

US intermediate Treasuries are projected to return 4.0% with volatility of 3.48%, while the cycle-neutral 10-year Treasury yield is estimated at 4.1%, corresponding to an expected return of 4.6%.

The report considers this to be the strongest intermediate Treasury outlook since the 2008 Global Financial Crisis.

Higher term premia means you’re again compensated for holding duration risk.

At the same time, inflation volatility remains elevated relative to pre-pandemic norms.

As such, J.P. Morgan argues that allocators should pair duration with explicit inflation hedges.

Gold, expected to return 5.5% with 16.68% volatility, was upgraded by 100 basis points year over year.

Gold serves less as a growth asset, given it’s a nonproductive asset, and more as a portfolio shock absorber in scenarios involving fiscal stress, currency debasement, or inflation surprises.

Together, duration plus targeted inflation hedges create a more balanced defensive structure than bonds alone.

Related

• Global Investment Returns Yearbook Summarized

Key Forecasts Table (USD, 10-15y assumptions)

Note: The report also shows USD fixed income returns improving across DM (e.g., long bond index 5.2%, IG credit 5.2% expected return) in the executive summary table.

Major Themes and Drivers in the LTCMAs

Economic Nationalism and Slower US Trend Growth

The rise of economic nationalism is one of the central structural themes in the report.

Policies that restrict migration, reshape trade relationships, and encourage domestic production are expected to reduce the United States’ long-run growth potential.

As a result, projected US real GDP is lowered to 1.8%, a 20 basis point reduction.

At the same time, global growth remains steady at 2.5%, and the Euro area sees an upward revision to 1.5%, an increase of 10 basis points.

The implication is a redistribution of growth opportunities across regions.

For allocators, this strengthens the case for international diversification rather than concentrated US exposure, which has looked good looking backward but may not be the case going forward.

Fiscal Activism as a Structural Growth Driver

Fiscal policy is no longer neutral or constrained in the way it was during the post-Global Financial Crisis period.

The report describes fiscal activism as “turbocharged,” particularly in Europe. Government spending commitments in defense, infrastructure, and industrial policy are expected to crowd in private investment.

The analysis points to approximately $4.6 trillion in corporate cash balances, suggesting firms have both the liquidity and incentive to expand capital expenditures when public policy creates clearer long-term demand signals.

A notable example is Germany’s removal of its constitutional “debt brake.” This signals a shift toward expansionary fiscal policy.

This fiscal pivot is a key reason behind upward revisions to European growth forecasts.

For portfolio construction, this theme supports higher expectations for infrastructure, industrial sectors, and regions undergoing structural fiscal expansion.

Artificial Intelligence

Artificial intelligence is no longer viewed as a productivity enhance in certain context; it’s transitioning into a phase where it’s being integrated to reshape cost structures and competitive dynamics across industries.

Despite lowering US growth assumptions, the report maintains a 6.7% expected return for US equities, owing to technological adoption and sustained corporate margin strength.

In the near term, large technology firms benefit from scale advantages and pricing power, which helps to preserve profitability.

Over the longer term, as AI diffuses into broader sectors, earnings gains may expand beyond the most concentrated mega-cap names.

Also, how profitable is AI to produce?

Will benefits accrue to the AI producers or more heavily to the users?

Air travel and automobiles have been significant technological advances to the economy, some of the most significant of the 20th century, but did little for shareholders in auto OEMs and airlines.

This diffusion reduces concentration risk while sustaining equity return potential.

The key takeaway is that technological innovation may offset some macroeconomic headwinds – particularly in profitability and earnings stability.

Persistent Inflation Volatility and Higher Term Premia

Although inflation is expected to moderate relative to pandemic peaks, volatility remains structurally higher than in the pre-2020 era.

This has two important implications.

First, the cycle-neutral 10-year US Treasury yield (nominal) is raised to 4.1%, a 20 basis point increase.

Correspondingly, the expected return on the 10-year Treasury rises to 4.6%, 40bps higher than prior assumptions.

Higher term premia improve the long-run expected returns of bonds and raise their prospective Sharpe ratios.

But importantly, the report cautions that bonds may no longer serve as a reliable hedge against all macro shocks.

In particular, inflation-driven shocks – e.g., 2022 – can weaken the popular negative correlation between stocks and bonds that tends to persist when growth variance is stronger than inflation variance.

Accordingly, allocators are encouraged to think in terms of dual hedging: protecting portfolios from both growth shocks and inflation shocks, rather than relying solely on duration exposure.

We explore how to do that in this article.

US Dollar Weakness as a Strategic Variable

Currency dynamics are a major structural factor in the outlook.

The report estimates that the US dollar remains roughly 10% overvalued on a trade-weighted basis.

It doesn’t go into detail on the underlying calculations, but analysts typically figure this by using a real effective exchange rate (REER) model. (Related: FX Valuation Models)

The steps:

1. Start with a trade-weighted basket of currencies proportioned to US trade partners.
2. Adjust exchange rates for relative inflation (real terms).
3. Compare the current REER to its long-run equilibrium value, often estimated using purchasing power parity (PPP), productivity differentials, and current account balances. (Related: Macro Variables That Influence FX Valuations)

If the actual REER is 10% above its model-implied fair value, the dollar is considered roughly 10% overvalued.

Over the long run, it projects appreciation potential for the Japanese yen and Chinese yuan/renminbi.

For US-based allocators, this creates a potential tailwind for unhedged international assets. (Many who own international assets have them hedged back into USD.)

Any currency appreciation can amplify foreign equity returns.

For non-US investors, currency hedging becomes a more active decision rather than a passive assumption.

In other words, foreign exchange exposure isn’t a secondary consideration. It’s a primary driver of long-term portfolio outcomes.

One of the easiest ways for traders to get some type of alternative currency exposure is by allocating to gold.

Structural Implication Across Themes

Taken together, these drivers suggest a world that’s more:

• regionally diversified
• fiscally active
• technologically dynamic
• inflation-sensitive, and
• currency-fluid…

…than the one that characterized the 2010s.

Growth is less US-centric, bonds offer improved yields but less certain hedging properties, and currency management becomes a meaningful source of return variation.

For strategic allocators, these themes reinforce the importance of global diversification, balance between financial and real asset exposure, technological participation, and thoughtful currency positioning within long-term portfolios.

Risks & Silver Linings

In terms of risks and upside, JPM cites the following:

Core downside risks (structural)

• Deficit concerns -> austerity (growth lower; curves bull-flatten; cyclicals/value lag).
• Regional conflicts widen (stagflation risk; commodities supported).
• Renewed US-China escalation into cloud/finance (supply-chain inefficiency; inflationary margin; tech headwind).
• US debt stress (term premium spike, e.g., long end of the curve sells off; USD softer vs. other havens).
• Cyberattack on markets/infrastructure (payments/clearing disruption, repricing of risk).

Silver linings / upside paths

• Productivity renaissance from accelerated capex (total factor productivity boost offsets aging; supports profits and debt dynamics).
• Faster renewables adoption (capex boom; later lower energy costs; supports real assets).
• AI power scarcity near-term down / long-term up (near-term CPI/margin pressure; later productivity upside as energy constraints ease).
  • AI may create a lot of investment waste short term, but exceed expectations long term, similar to the internet.
  • Plus the upside of technologies iterated off of known AI/automation tech, and new technologies that aren’t yet known.

Portfolio Construction Implications

1) Treat “60/40” as the baseline, but expect “60/40+” to be the strategic default

JPM’s USD global 60/40 return forecast holds at 6.4%, and adding ~30% diversified alts lifts return to 6.9% with a ~25% Sharpe improvement.

The report explicitly frames the modern portfolio as “60/40+” with a portion into private markets/alternatives.

Related: Liquid Alternatives

2) The efficient frontier flattens -> bonds deserve a bigger strategic role than in the 2010s

“Better bond returns and broadly stable equity returns” flatten the stock-bond frontier and may push allocators to increase strategic fixed income weights.

Practically: intermediate Treasuries (4.0% return, low vol) are again meaningful ballast.

3) Don’t rely on bonds alone for protection: explicitly hedge inflation volatility

JPM is clear that elevated inflation volatility can break the “bond hedge” at times.

So pair duration with inflation-resistant real assets and/or gold.

TIPS and inflation-linked or floating-rate fixed income is another option.

4) Build globally (USD weakening makes home bias costlier for USD-based investors)

With USD projected to weaken and CNY/JPY having scope to appreciate, global equity exposure can pick up return via FX.

For non-USD investors, JPM flags FX hedging as a renewed strategic decision (not a passive default).

5) Use alternatives as “resilience enhancers,” not just return enhancers

A coherent 60/40+ implementation consistent with their frontier framing (Exhibit 8A note) is:

public equity core + high-quality bonds + (PE + RE + real assets + private credit + hedge funds).

The report also argues that active/hedge fund opportunity improves as tech use creates dispersion.

Namely, they raised hedge fund return assumptions by 30-70bps across styles.

Top-10 by Expected Return (USD, 10–15yr Horizon)

Source: USD asset class assumptions, pages 82–83.

*Private market volatilities are shown in the matrix; rounded where applicable.

 Top-10 by Proxy Sharpe (Return ÷ Volatility)

This ranking highlights efficiency, not absolute return.

*Bond proxy Sharpe appears numerically high because volatility is low; note this is not excess return over cash, so it overstates true Sharpe relative to risky assets.

Source: pp. 82–83.

Strategic Interpretation

So what can we get from this?

Highest Conviction Return Plays

Private equity and value-added real estate dominate absolute return forecasts. This reinforces JPM’s “60/40+” framework with a meaningful private markets allocation.

Best Risk-Adjusted Blocks

Core real estate, infrastructure, and high yield screen strongest on return/vol efficiency.

These are “portfolio stabilizers with yield.”

Public Equity Efficiency Is Moderate

US, EAFE, and EM equities cluster in a 0.37-0.43 proxy Sharpe band.

Return dispersion across regions is narrower than in prior LTCMA vintages.

Bonds Are Back (But Measured)

Aggregate bonds show strong efficiency (return relative to risk) due to low volatility, but real Sharpe depends on inflation path and real yield persistence.

Appendix

Below you can find the expected compounded return and volatility of each major asset class.