GMO 7-Year Asset Class Forecast: July 2026

GMO’s seven-year forecasts imply weak or negative real returns for most developed-market equities, while value stocks, emerging assets, and inflation-sensitive bonds offer the strongest expected returns.

• As of July 31, 2026, the normal-rate scenario assumes a 1.3% equilibrium real cash rate, while the low-rate scenario assumes 0.0%.
• Under normal rates, expected real returns are -7.2% for U.S. large caps, -5.9% for U.S. small caps, -0.3% for U.S. deep value, and -1.5% for international large caps.
• The normal-rate scenario is more favorable to international small caps at 1.0%, international deep value at 3.0%, Japan small value at 4.4%, emerging value at 2.0%, and U.S. inflation-linked bonds at 2.7%.
• Under low rates, expected returns improve across the equity categories, including -4.2% for U.S. large caps, 1.7% for U.S. deep value, 4.4% for international deep value, and 6.1% for Japan small value.
• Low-rate forecasts also reach 3.7% for U.S. bonds, 4.0% for U.S. inflation-linked bonds, 3.2% for emerging debt, and 0.9% for U.S. cash.

Takeaway: GMO’s valuation-based outlook favors deep-value equities and selected emerging or inflation-linked assets over broad developed-market equities, although the forecasts are forward-looking views rather than guarantees and are sensitive to the assumed interest-rate regime.