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Are 60/40 Portfolio Returns Predictable?

Executive Summary

Long-horizon asset class returns are reasonably predictable using simple models of expected return.
However, equity returns over the last decade far exceeded model-based predictions.
We posit a framework for the drivers of potential mean-reversion in equity returns.
We believe increases in real bond yields and a decline in corporate profit growth are the most likely candidates to prompt an equity market correction.

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