Financial markets were ravaged in 2022 as valuations suddenly retraced from extremes, setting up the conditions for improved return potential for a wide range of asset classes going forward.

Last year marked one of the worst periods on record for financial markets in terms of the depth and breadth of declines in asset prices globally. The rapid and coordinated tightening of monetary conditions everywhere hurt an unusually broad range of investments, with the biggest declines occurring in segments of the market most sensitive to changes in interest rates. Government bonds suffered their biggest drop since the 1980s and the world’s major equity-market indices fell precipitously into bear markets (Exhibit 1). Although last year was painful for investors and a variety of near-term risks remain, the scale of adjustment that we’ve seen in interest rates and asset prices last year erased much of the overvaluation that existed at the beginning of 2022 and reset interest rates to levels not seen since before the 2008 global financial crisis. With that re-pricing now behind, financial markets today are meaningfully more appealing to investors and, as forecasters looking forward, we find ourselves more constructive on the outlook for investment returns across a broad range of asset classes over a time horizon measured in decades.