Investors are now faced with what analysts describe as the strongest foundation for a market rotation in more than a decade, driven by a shift away from the “old normal” of near‑zero rates toward a regime of higher inflation, positive real yields and more diversified asset classes.
Macro backdrop reshapes expectations
The post‑pandemic environment has been reshaped by lingering supply‑chain adjustments, geopolitical fragmentation and a sustained rise in interest rates. Inflation, though lower than its post‑Covid peak, remains sticky because of labour shortages, underinvestment in commodities and a broader move toward de‑globalisation. Real yields are now meaningfully positive, and the risk of inflation spikes is asymmetric to the upside.
Forecasts suggest the U.S. economy will grow at an average of 2.1% real GDP annually over the next ten years, while global growth is projected at 3.6%. Trend productivity is expected to rise at 1.8%, partially fueled by AI diffusion and ongoing investments in digital and physical infrastructure.
Asset class outlook
Fixed‑income investors can anticipate higher yields than in the last decade, with credit spreads remaining tight but vulnerable to abrupt widening. The bond market’s long‑run neutral rate appears reset higher, offering a more attractive return profile relative to the prior era.
U.S. equities face a tougher outlook, constrained by raised valuations, higher input costs and a structurally higher cost of capital. Developed non‑U.S. equities may benefit from more appealing valuations and room for earnings growth to normalise.
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Emerging‑market equities are seen as a selective play, below their long‑term historic average because of the strong gains already realised in the last decade.
Real assets stand out as the most compelling long‑term opportunity. Analysts expect natural‑resource equities to lead, with infrastructure, real estate and commodities also offering attractive prospects. These expectations rest on structural scarcity, inflation sensitivity and continued investment needs, while valuations remain attractive and correlations with traditional stocks and bonds stay low.
Despite the optimism, risks persist. AI‑driven productivity could fall short, potentially raising unemployment. Inflation may accelerate if new supply shocks emerge, and geopolitical tensions could further disrupt trade flows. Valuations in equities or private markets might adjust faster than anticipated, and bond markets could reprice the long‑run neutral rate upward.
For investors, the practical implication is that a broader set of assets—particularly real assets—offers a more balanced risk‑return profile than the narrow focus on U.S. equities that has dominated the past fifteen years. Holding a mix of infrastructure, natural‑resource equities and listed real estate can provide income streams and diversification, helping to mitigate the volatility that accompanies higher real yields and persistent inflation pressures.
Diversification remains key.
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