As we approach the end of 2023, we are taking stock of the ﬁnancial market landscape and certain structural shifts that are coming to the fore. Over the past 15 years, the pendulum has swung from one extreme to another, bookended on either side by the global ﬁnancial crisis and the pandemic. A protracted period of near-zero interest rates has been replaced with the steepest Federal Reserve (Fed) tightening cycle on record. Almost nonexistent inﬂation has been replaced with persistent, generationally high inﬂation. Both phases saw bank failures and bouts of extreme market volatility. All the while, markets have carried on, mostly producing hefty, positive returns. Although the economy appears to be humming along for now, we are likely on the precipice of a recession.
Given the fundamental changes to the market backdrop, certain assumptions that support our long-term return and volatility expectations have changed. Every year we revisit our underlying assumptions around risk and return across asset classes and provide updated long-term estimates that inform our asset allocation process. While updating this year’s long-term market estimates, we took the opportunity to also reafﬁrm the building blocks of our investment process, which became the genesis of this special edition of our Strategy Insights publication.
In our typical Strategy Insights, we provide in-depth views into various challenges, opportunities and trends within the current market environment. However, in this edition, we decided to ﬂip the script and instead highlight how we remain moored through the market’s perpetual shifting tides and choppy seas. In this publication, we share a behind-the-scenes view of how we analyze, construct and monitor investment portfolios on behalf of our clients. This foundation is what we believe gives us the optimal chance of helping clients achieve their investment goals, regardless of the market environment.