The following article is based on a recent paper on the capital market sectors to watch over the next ten years. 

The author of this article, Jeffrey Palma, is head of multi asset solutions at Cohen & Steers. The firm is headquartered in New York, and has offices in London, Hong Kong, Singapore, Tokyo, and Dublin. It concentrates on real assets and alternative income, including listed and private real estate, preferred securities, infrastructure, resource equities, commodities, and other areas. 

In a time where many are concentrating on the immediacy of markets, he looks to the long-term growth patterns over the next decade and analyses which asset classes are set to perform. Palmer touches on the pull-down of US equity valuations and resulting benefits to fixed income, as investors adjust to a world of persistent inflation and higher rates. In particular, he highlights why real assets are poised to perform and generate stronger returns. The editors are pleased to share these ideas; the usual editorial disclaimers apply to views of guest writers. To comment, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

This is the third edition of our annual capital market assumptions (CMA), which outline our view of macroeconomic conditions and financial market expectations for the next 10 years. This process helps investors consider their approach over a strategic time horizon. We survey the current economic environment, alongside asset prices and prevailing valuations, to develop baseline projections of returns, volatility and correlations.  

Markets are beginning to adjust to a new paradigm after two years of rising rates and persistent inflation. Our updated capital market assumptions reflect our view that growth will remain resilient, but valuations will normalize given higher interest rate expectations. 

Consider the last decade. Global equities delivered annual total returns of nearly 10 per cent, while US equities returned more than 12 per cent. Entering 2025, the S&P 500 has delivered gains exceeding 25 per cent in each of the previous two years, and valuations are reaching levels not seen since the dot-com bubble. In addition, the correlation between stocks and bonds is the highest it has been since the early 1990s. Market conditions suggest a reversal of fortunes.

We believe the next 10 years are likely to be defined by higher (more normal) yields alongside increased economic volatility and geopolitical uncertainty. Those headwinds are potentially tempered by technology-led productivity gains and economic growth, likely driven by continued investment in infrastructure and opportunities presented by changing trade patterns.

Our view of rates is informed by this global growth outlook combined with inflation that remains above target. Inflation is likely to remain sticky given higher wages, a turn away from globalization, geopolitical friction, and more elevated commodity prices. This is reflected in our assumption of a 3.25 per cent federal funds rate and “fair value” of the 10-year Treasury yield around 4.5 per cent. 

From our perspective, higher interest rates play an important role in driving expected returns across markets. Historical patterns show that initial valuation levels strongly influence subsequent performance. 

Accordingly, we believe US equity valuations will be pulled lower, while fixed income will benefit from higher starting yields. By comparison, real assets appear more reasonably priced following a period of underperformance and are well positioned to generate substantially stronger returns. 

The appeal of market leaders is understandable, particularly given that many investors’ experiences have been limited to an era of low rates, stable inflation and consistently robust stock performance. However, our experience demonstrates that building portfolios based on past performance alone is a recipe for subpar returns and missed opportunities in evolving markets.

Fixed income
The higher starting point for interest rates creates a strong foundation for fixed income returns. Though we believe the neutral fed funds rate will be 3.25 per cent, we project returns on Treasuries of 4.6 per cent over the next decade, roughly in line with starting yields. 

A pro-business policy climate and a generally strong corporate environment create an attractive starting point for corporate credit. We project that investment-grade corporate debt returns will average 5.1 per cent over the decade, with high-yield debt returning an average of 6.1 per cent.

These are modestly higher projections than we made last year, again based off more attractive yields today. Given the non-linear nature of spread moves and the low level of the starting point, we acknowledge spreads could go intermittently wider during the 10-year window to reflect a rise in default risk. However, we believe the full-cycle fair value spread is not too far from today’s level.

Preferred securities led fixed income performance last year, driven by narrowing credit spreads and discounted valuations. Looking ahead, they remain well positioned, offering attractive yields of 6–8 per cent among investment grade options. Considering last year’s spread compression, we are reducing our long-term outlook for preferred returns from 6.4 per cent to 6.1 per cent. While credit spreads are historically tight, strong fundamentals in the financial sector (particularly banks’ record capital levels and solid earnings) provide a stable foundation.

Equities
Global equity returns look poised to converge over the next decade, with non-US equities outperforming domestic equities. In the US, strong nominal growth should sustain revenue expansion, though margin pressure could weigh on earnings. However, more importantly, some PE multiple compression suggests more modest returns of 5.8 per cent annually, marking a significant decline from the 12.5 per cent achieved over the previous decade. Investors should expect earnings growth and dividend yield to account for all the realized total return. 

International developed markets offer a different proposition. While these markets face headwinds from declining working-age populations and lower productivity, their higher dividend yields, and more attractive valuations position them to exceed US equities - a notable shift from their historical underperformance. We believe non-US developed market equities could achieve 7.0 per cent average annual growth over the next decade. 

Emerging markets are expected to continue underperforming, relative to non-US developed markets, in coming years. Despite stronger GDP and earnings growth, a lower dividend yield and modest share dilution over time will likely weigh on prospective returns. Even so, we believe emerging markets will close their performance gap with US equities in the coming decade, with average annual returns of 6.3 per cent - although this will be primarily driven by the weaker pace of US market returns.    

Real assets
We expect an economic backdrop of increased macro volatility and elevated inflation. These factors (particularly those contributing to higher inflation) are collectively expected to support real assets returns over the long term. 

Looking across the real assets categories, we expect opportunities to arise from supply/demand imbalances, particularly in markets where structural underinvestment intersects with accelerating demand from rising populations, energy transition and technological advancement. Even without multiple expansion, valuation levels appear reasonable. While there will be dispersion among real assets, we see a meaningfully better return backdrop going forward than has been the case for most of the period following the global financial crisis, when inflation surprised to the downside for over a decade. 

Natural resource equities lead with expected returns of 8.4 per cent, supported by commodity price strength, current valuations and strong free cash flow growth. Global listed REITs and US listed REITs follow closely, with projected returns of 7.8 per cent each. Global property valuations have experienced a reset, and fundamental performance has continued to improve. 

Global listed infrastructure is projected to return 7.6 per cent. Infrastructure returns are supported by attractive starting valuations and growth potential - in part, from ongoing electrification of industry and rapid data centre growth - as well as by their defensive characteristics in a more volatile macroeconomic environment.

Our commodities outlook of 5.9 per cent average annual returns over the decade is supported by several long-term structural factors. Supply constraints stemming from years of underinvestment across many commodity sectors are coinciding with increasing demand pressures from energy transition initiatives and evolving geopolitical dynamics. We expect gold to return 3 per cent, in line with our long-term inflation forecast. 

While the long-term outlook is positive, investors should remain mindful of sector-specific challenges, including potential energy market oversupply, ongoing weakness in China’s property market, and geopolitical tensions affecting European real estate. However, these risks appear manageable over a long-term investment horizon, particularly given the attractive valuations and strong secular growth drivers across the real assets universe.

About the author

Jeffrey Palma is head of multi-asset solutions at Cohen & Steers and is responsible for leading the firm’s asset allocation strategy and macroeconomic research. Prior to joining the firm in 2021, Palma was a managing director at State Street Global Advisors, where he led a team of 20 individuals responsible for investment strategy and strategic asset allocation, as well as portfolio construction and implementation. Previously, he was head of tactical asset allocation at GE Asset Management and head of global equity strategy at UBS Investment Bank. Palma has a Doctor of Business Administration in Finance degree from Sacred Heart University, an MBA from Columbia University and a BA from Rutgers University. He is based in New York.