Capital Markets Assumptions
Asset class forecasts to help inform our strategic asset allocations.
Key Takeaways
Our updated capital markets assumptions reflect evolving economic conditions, with new AI-related scenarios helping shape three- to five-year forecasts.
Asset class forecasts continue to emphasize fundamentals such as growth, inflation, earnings and valuations rather than recent market returns.
A slightly higher efficient frontier reflects a more favorable outlook for select markets while accounting for a range of macroeconomic outcomes.
Our Multi-Asset Strategies team consistently monitors the evolving investment landscape to inform our capital markets assumptions (CMAs). Drawing on trends in macroeconomic and market data, corporate earnings and policy developments, we have updated our CMAs and modestly revised our outlook as we head into 2027.
With AI’s growing importance in the U.S. economy and the uncertainty this poses, we modified the scenarios underpinning our medium‑term (3-5-year) forecasts to include “good” and “bad” tech shocks. We also revised our “policy shock” scenario to focus on cross-border conflicts and deglobalization.
As always, our asset class forecasts are based not on recent returns, but on our outlook for growth, inflation and future earnings, as well as the price we believe investors are likely to pay for those earnings. Since these fundamentals evolve gradually, our projections aren’t unduly influenced by short-term volatility.
Our Five-Year Return Expectations by Asset Class
Cash
Returns should outpace inflation, which we expect to average 2.75% over the medium term.
Equities
We expect valuation multiples for large-cap equities to continue normalizing over the next five years. Together with earnings growth and dividends, this brings our arithmetic average return forecast to 7.00%. Figure 1 summarizes our equity expectations and provides details of our projections.
U.S. Large-Cap Growth Equity
While U.S. large-cap growth stocks have been propelled higher in recent years by both earnings growth and high price-to-earnings (P/E) multiples, we expect valuation multiples to decline going forward, even as earnings remain healthy.
U.S. Large-Cap Value Equity
We also expect the average P/E multiple for U.S. large-cap value stocks to decline, but to a much lesser extent. While we expect earnings growth for value stocks to be modest over the next five years, dividends should support the asset class.
U.S. Small-Cap Equity
We expect U.S. small-cap stocks to deliver stronger earnings growth than large-cap value stocks, while small-cap P/E multiples are likely to experience little change.
Non-U.S. Developed Markets Equity
We are forecasting non-U.S. developed markets equities to deliver returns similar to U.S. small-caps, with returns relying more heavily on dividends and less on earnings-per-share (EPS) growth.
Figure 1 | Components of Real Return Projections for Developed Markets Equities
Data as of 10/26/2026. Source: American Century Investments. Returns are simulated based on capital market assumptions from the Multi-Asset Strategy team’s medium-term forecasts (3-5 Years). Forecasts are not a reliable indicator of future performance. For each asset class, American Century develops a set of assumptions for return, risk, and correlation. Because asset class returns and relationships are ultimately grounded in economic fundamentals, we forecast over the equivalent of a complete economic and market cycle. We arrive at our return forecasts through various modeling techniques, such as a classic valuation approach, a risk-premium approach, and a historical risk and return analysis. In addition to this quantitative process, we employ a qualitative review, recognizing that there are elements that can’t be easily captured by a quantitative process. Further, the quantitative models require forecasting various inputs, which again may contain qualitative elements. Capital market assumptions are not meant to reflect any projection or promise of performance. No guarantee or representation is being made that any account will or is likely to achieve the assumptions shown.
Fixed Income
Return expectations across most fixed‑income categories are little changed, with a moderated outlook for U.S. high yield and convertibles, as spreads remain tight relative to long‑run norms, and a modestly higher yield for cash.
Our outlook for returns on longer‑dated bonds remains healthy given today’s yields.
Real Assets/REITs
Our assumptions reflect an uncertain demand environment and a gradual normalization in financing conditions.
Based on these inputs, we are forecasting a 60/40 global portfolio, with U.S. holdings comprising 60% of each sleeve, to have an annualized return of approximately 6.17% over a five-year period.
Efficient Frontier Shifted Slightly Higher
Earnings growth is likely to continue to drive returns for U.S. stocks. Return/volatility forecasts produce an efficient frontier slightly above what we projected at the start of 2026. See Figure 2. This is primarily due to modestly higher return outlooks for U.S. large-cap growth and core equities, Eurozone and Asia-ex-Japan equities, and non-U.S. developed market bonds.
Figure 2 | Stock/Bond Frontier Shows Improved Return Potential
Data as of October 2026. The forecast represents American Century Investments’ view on asset class return and risk over the next three to five years as of October 2026. Opinions and estimates offered constitute our judgment and, along with other data, are subject to change without notice. Risk is represented by annualized standard deviation. Source: American Century Investments.
How We Build Our Capital Markets Assumptions
Our capital markets forecasts are:
Grounded in economic fundamentals
Transparent regarding underlying assumptions
Systematically developed and reviewed to reduce bias
We use a range of techniques to construct the building blocks of our return and volatility forecasts, resulting in an internally consistent set of projections across more than 50 asset classes. These building blocks include fundamental inputs such as inflation, cash, real yields, real earnings growth and more.
Macro Scenarios and Probability Weighting
Our macro scenario modeling incorporates research on long-term economic drivers that can have a broad impact on asset-class performance. This research helps us identify the economic currents that could strongly influence outcomes over the next five years. We then assign probabilities to each scenario to develop a set of return expectations that reflects these views.
Here, we briefly describe our current set of five-year scenarios and their implications for U.S. GDP and inflation:
Steady State: Inflation slowly drifts lower and GDP growth is moderate.
Tech Shock - Good: AI powers productivity gains, boosts GDP and corporate earnings, and restrains inflation.
Tech Shock - Bad: Spending on AI doesn’t significantly boost productivity, pushing GDP growth lower.
Global Conflict: Trade restrictions and geopolitical conflicts further the deglobalization trend, limiting growth and/or causing inflation due to tariffed inputs and reduced efficiencies globally.
Energy Dynamics: Spending to increase energy security raises energy prices; growth in renewable energy provides a boost to some sectors.
Gray Economy: An aging population reduces demand for goods and services and decreases the supply of savings available to invest in growth.
Figure 3 | A Range of 5-Year Macro Scenarios
The forecast represents American Century Investments’ view of asset class returns and risks over the next three to five years, as of October 2026. Opinions and estimates offered constitute our judgment and, along with other data, are subject to change without notice.
For an in-depth discussion of our methodology, please see our paper titled “Comprehensive Capital Market Assumptions.” Our long-term (20-year) CMAs are also available on request.
Asset Class Assumptions
Data as of October 2026. Source: American Century Investments. Returns are simulated based on capital market assumptions from ACI Multi-Asset Strategies’ medium-term forecasts (3-5 Years). Forecasts are not a reliable indicator of future performance. American Century Investments Capital Market Assumptions: For each asset class, American Century develops a set of assumptions for return, risk, and correlation. Because asset class returns and relationships are ultimately grounded in economic fundamentals, we forecast over the equivalent of a complete economic and market cycle. We arrive at our return forecasts using various modeling techniques, such as a classic valuation approach, a risk-premium approach, and a historical risk-and-return analysis. In addition to this quantitative process, we employ a qualitative review, recognizing that there are elements that can’t be easily captured by a quantitative process. Further, the quantitative models require forecasting various inputs, which again may contain qualitative elements. Capital market assumptions are not meant to reflect any projection or promise of performance. No guarantee or representation is being made that any account will or is likely to achieve the assumptions shown.
Authors
Senior Vice President, Senior Portfolio Manager
Chief Investment Officer, Multi-Asset Strategies
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Forecasts are not a reliable indicator of future performance.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
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