Check out the most recent quarterly outlook videos from RBC Global Asset Management
Our models assume that real interest rates revert to their historical norm over the next half-decade and that the increase is distributed evenly over time. As a result, we could be in for a sustained period of rising yields that would act as a headwind to bond returns for many years.
Equities look more appealing relative to bonds and, while our total-return expectations for stocks are lower than they have been at previous points in the cycle, they remain positive and continue to exceed those for sovereign fixed income.
Weighing the risks and opportunities, we believe it is appropriate for a balanced investor to maintain a slightly above-benchmark exposure to risk assets. In our view, economic growth will be sufficient to drive further gains in corporate profits and revenues but, given the aging business cycle and the fact that U.S. equities are above fair value, we have reduced our total-return expectations and caution investors to expect heightened levels of volatility over the coming quarters. Our asset mix is closer to neutral than it has been at earlier points in the bull market.