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2022 Capital Market Assumptions: a five-year perspective

Heading into 2022, valuations for most asset classes appear full - particularly equity market multiples, but also extending to credit spread

Economies and financial markets saw varying degrees of normalization in 2021, and contrasts across investments were stark, or even paradoxical at times. Vaccine distribution and adoption in developed countries allowed for some return to economic normalcy, while developing countries still had to contend with the lingering virus more so than other countries.

Within financial markets, pockets of euphoria drove cryptocurrencies and meme stocks, as well as some tech giants “to the moon,” while bond markets—aided by central bank accommodation—kept interest rates near rock bottom. These conflicting observations present a greater challenge to our 2022 forecasts and impose wider bands around our confidence levels, but our base case is outlined below.

Investment outlooks are always uncertain, but investment decisions can be made easier by the margin of protection provided by valuations. Heading into 2022, valuations for most asset classes appear full — particularly equity market multiples, but also extending to credit spreads and government bond yields.


Our five-year expectations for equity returns are generally stable to slightly higher versus last year. Globally, our baseline forecast of modest earnings growth and a slight contraction in valuations, produces five-year total return expectations that would rank in the bottom third of realized returns historically.

As the comparatively slow recovery of emerging markets (EMs) from the pandemic takes shape, we expect EM equities to outperform their counterparts in the developed markets. In a similar reversal of recent history, our expectations for Eurozone, UK, and Japanese equities generally outpace the U.S.

Fixed Income

Across the government yield curves covered by our publication, we expect interest rates to rise over the next five years. While we recognize the despair of those who have predicted rising rates over the past decade, we believe the combined effects of recent fiscal and monetary policies have created an environment that is unique for the era that has followed the 2008-2009 global financial crisis. Generally, our investment professionals expect yield curves to flatten as economic recovery prompts central banks to raise short rates. We believe the duration impact will be most sharply felt in government bond indexes, where we expect total returns of less than one percent, with some dipping into negative territory. We anticipate that credit spreads for investment grade and high yield corporate debt will widen slightly in developed markets but expect this to have a relatively muted impact on returns.


Our slightly more bullish expectations for public equity markets relative to our 2021 outlook carries through to forecasts of alternative asset classes which have some structural equity beta. We also believe the backdrop for active management will be more favorable, leading to higher return expectations for asset classes like hedge funds and private equity which rely on active management for a significant amount of their value proposition.

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T. Rowe Price Capital Market Assumptions: The information presented herein is shown for illustrative, informational purposes only. Forecasts are based on subjective estimates about market environments that may never occur. This material does not reflect the actual returns of any portfolio/strategy and is not indicative of future results. The historical returns used as a basis for this analysis are based on information gathered by T. Rowe Price and from third party sources and have not been independently verified. The asset classes referenced in our capital market assumptions are represented by broad-based indices, which have been selected because they are well known and are easily recognizable by investors. Indices have limitations due to materially different characteristics from an actual investment portfolio in terms of security holdings, sector weightings, volatility, and asset allocation. Therefore, returns and volatility of a portfolio may differ from those of the index. Management fees, transaction costs, taxes, and potential expenses are not considered and would reduce returns. Expected returns for each asset class can be conditional on economic scenarios; in the event a particular scenario comes to pass, actual returns could be significantly higher or lower than forecast.

Key Risks

Forecasts are based on subjective estimates about market environments that may never occur. Some of the factors that could impact these forecasts include, but are not limited to:

  • Political and economic conditions
  • Performance of financial markets
  • Interest rate levels
  • Changes to laws or regulations

Investments in equities are subject to the volatility inherent in equity investing, and their value may fluctuate more than investing in income-oriented securities. Certain asset classes are subject to sector concentration risk and are more susceptible to developments affecting those sectors than broader classes. Investment in small companies involves greater risk than is customarily associated with larger companies, since small companies often have limited product lines, markets, or financial resources. Transactions in securities denominated in foreign currencies are subject to fluctuations in exchange rates, which may affect the value of an investment. Debt securities could suffer an adverse change in financial condition due to a ratings downgrade or default, which may affect the value of an investment.

Investments in high yield involve a higher element of risk. Investments in less developed regions can be more volatile than other, more developed markets due to changes in market, political, and economic conditions. Investments are less liquid than those that trade on more established markets.

Bloomberg® and Bloomberg Indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by T. Rowe Price. Bloomberg is not affiliated with T. Rowe Price, and Bloomberg does not approve, endorse, review, or recommend T. Rowe Price Capital Market Assumptions. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to T. Rowe Price Capital Market Assumptions.



This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

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Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

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