The GMO Asset Allocation team has released its latest 7-Year Asset Class Real Return Forecasts (chart below).
"August markets were notable on a host of fronts as macro events --- political drama and brinksmanship with Brexit, trade war flare-ups and surprise election results in Argentina --- fed the markets all they needed to migrate into a risk-off mode," Peter Chiappinelli, from GMO's Asset Allocation team, said.
"The magnitude of the move, more than the direction, surprised many, with particular drama on rates. The 10-year Treasury yield declined by 52 basis points on the month, bringing yields within a whisper of their 150-year historic low. And the market even witnessed the dreaded and ominous inverted yield curve."
"Even though stocks sold off a bit, we are still witnessing extremely high and optimistic valuations of stocks (especially, if not particularly in the U.S.); simultaneously, we are approaching extreme levels of pessimism as found in extreme bond pricing. At last count, $17 trillion of global debt is now delivering negative yields.
"Our 7-Year Forecasts, no surprise, reflect these shifts. We see the least attractive return prospects in U.S. stocks and the most attractive returns in emerging value."
