Higher volatility is here to stay
We forecast continued positive returns for most asset classes over the next 12 months, except for a number of traditional fixed income investments. These expected returns are below historical averages, while risk is unchanged. Equities are still at the top and government bonds at the bottom. This forecast depends on whether our optimistic outlook for a more prolonged expansion materialises. The late-cyclical phase is tricky when it comes to assessing expected returns and risks, since in the latter part of this phase investors must start taking the next recession into account. However, we believe it is too early to do so.