Are 60/40 Portfolio Returns Predictable?
Vol. 21, No. 3, 2023
Jamil Baz, Steve Sapra and German Ramirez
Long-horizon asset class returns are reasonably predictable using simple models of expected return. However, equity returns over the last decade far exceeded model-based predictions. We posit a framework for the drivers of potential mean-reversion in equity returns. We believe increases in real bond yields and a decline in corporate profit growth are the most likely candidates to prompt an equity market correction.