Summary List Placement
A team of PIMCO economists wrote on Wednesday that investors should prepare for lower returns and higher volatility for the next three to five years.
Even the “best efforts of central banks” will be unlikely to offset macroeconomic slowdowns, PIMCO said.
“Over the next five years it is quite likely that bad news on the macroeconomic front will turn out to be bad news for risk assets,” they wrote.
Investors can prepare for this period of lower returns by emphasizing capital preservation, said PIMCO.
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The stock market experienced skyrocketing returns over the last few years. But a team of economists from PIMCO is now telling investors that the next three to five years are likely to be met with lower returns and higher volatility.
“Given historically low yields and high equity valuations, it makes sense for portfolio managers and asset allocators alike to lower their return expectations rather than stretch too far and extend too far down the quality spectrum in hope of maintaining historical levels of returns,” PIMCO wrote on Wednesday.
The economists added that even with the “best efforts of central banks,” low stock returns and high volatility are still likely. PIMCO added that central bank policy is unlikely to offer market security against a slowing economy.
“We see little reason to be confident that the pattern we have observed in the past 10 years of ‘bad news is good news’ – where markets anticipated central bank responses that dominated macroeconomic realities – will continue. Over the next three to five years it is quite likely that bad news on the macroeconomic front will turn out to be bad news for risk assets,” they wrote.
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US stock indices have rebounded sharply from their March lows. The S&P 500 and Nasdaq both hit record highs this summer. The S&P 500 is up more than 6% year-to-date.
However, PIMCO told investors that the experience of the past 10 years is “not necessarily the guide for the next decade.”
Investors can prepare for this period of lower returns by emphasizing capital preservation, said the economists. They recommend investors be patient, invest in global assets, and be flexible to “utilize as wide as possible a set of investment instruments and pursue attractive risk-adjusted opportunities across jurisdictions.”
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Source:: Business Insider