2024 Long-Term Capital Market Assumptions – Q1 Update

• The 21.5% rally of US large-cap equities over the past four months¹, driven by the recent AI boom, has been nothing short of spectacular. Typically, such velocity occurs after markets have experienced a recession and have begun pricing in the early stages of a recovery, with the only other instance in the post-WW2 era (1945) coinciding with the dot-com bubble.
• Concentration risk is one that occurs in many individual regional equity markets and rarely causes systemic issues for markets globally. However, it has led to significant sell-offs, like during the early 2000s in the US. Given the size of the US market currently, concentration in a handful of equities like the “Magnificent 7” poses risks for global multi-asset investors as drawdowns can occur even without a specific catalyst.
• While we are not claiming that this instance of concentration risk will be a harbinger of the next recession, it is a risk we are intently focusing on and diversifying away from through non-market capitalization weighted equity strategies, like factors and global equities outside of the US.

¹ Source: Bloomberg L.P., four months ending February 29, 2024. The analysis is based on the S&P 500 Index used as a proxy. Past performance is not a guarantee of future results. An investment cannot be made directly into an index.

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