What's New in Schwab's 10-Year Outlook
Schwab Asset Management updated its long-range Capital Market Expectations for the 2026 to 2035 stretch using a mix of quantitative models and judgment from senior investment professionals. The projections are nominal, annualized averages over a decade, and framed from a U.S. dollar investor's perspective. They are tied to broad market benchmarks rather than specific funds, and they do not include costs like fees or taxes.
The new call trims equities a touch compared with last year. Schwab now sees U.S. large-cap stocks returning 5.9% a year on average over the next decade, a hair below last year's 6% estimate. Fixed income is nudged down too, with U.S. aggregate bonds at 4.8% versus 4.9% previously. Cash is reset to 3.3% for the next ten years, reflecting the Fed's ongoing reductions in short-term rates.
On the macro side, Schwab's decade view for inflation-adjusted U.S. GDP growth is now 1.9%, down from 2.0%, and long-run inflation is bumped up to 2.4% from 2.3%. That inflation shift nods to near-term pressures, including uncertainty around tariffs, and a trend that sits slightly above the Federal Reserve's 2% target. These forecasts draw on information available up to October 31, 2025.
2025's Reality Check: Diversification Still Matters
Schwab flags a familiar set of imbalances: concentrated equity leadership, rich valuations, tight credit spreads, and a yield curve that has been flatter than average. Those kinds of stretches can linger, but 2025 showed how quickly tides can turn. In the first six months of the year, the "Magnificent 7" cooled, overseas equities beat U.S. markets, the greenback lost ground, and the Treasury curve shifted toward a steeper slope.
U.S. markets rebounded in the second half. The takeaway is practical rather than dramatic: keep portfolios spread across regions and asset classes.
Looking ahead, Schwab's 2026 outlook underscores three themes. U.S. equity valuations and concentration keep risks elevated. International equities offer diversification potential. And fixed income still looks constructive, with yields remaining attractive even after recent rate cuts.
Macro Crosswinds the Fed Is Navigating
The Federal Reserve is walking a narrower line as traditional anchors like predictable inflation and fiscal restraint have loosened. Inflation is still running a bit above the Fed's 2% goal, and signs of a softer labor market are emerging. At the same time, the yield curve has moved to a steeper shape, a shift that may reflect concerns about sticky inflation and the government's capacity to manage growing debt.
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Risks are not in short supply. Geopolitical tensions, high U.S. debt, and policy uncertainty complicate the picture. On the fiscal side, heavy federal spending could deepen deficit worries, while aggressive cuts could slow growth.
Rising U.S.-China trade friction could disrupt supply chains, pushing prices up while weighing on output. Meanwhile, a weakening job market could signal a change in momentum.
Schwab's lower 10-year real GDP outlook at 1.9% reflects several headwinds. If tariffs stay elevated, they could raise business costs and squeeze consumers' purchasing power. Tighter immigration rules and an older population can curb labor force growth.
Outlays on artificial intelligence and the supporting infrastructure could mitigate some of these pressures in developed markets, yet the enduring productivity lift from new technologies is infamously difficult to measure. For investors, slower growth and modestly higher inflation set the stage for returns across asset classes.
How Schwab Builds the Numbers and What It Means for Your Money
Schwab's expectations are built from representative benchmarks, not investable products. Benchmarks referenced include the S&P 500 Total Return Index (U.S. large caps), Russell 2000 Total Return Index (U.S. small caps), MSCI EAFE Net Return Index and MSCI EAFE Small Cap Net Return Index (international developed markets), MSCI Emerging Market Net Return Index, S&P U.S. REIT Total Return Index, Bloomberg U.S. Aggregate Bond Total Return Index, Bloomberg U.S. TIPS Total Return Index, Bloomberg U.S. Treasury 1-3 Year Total Return Index, and FTSE 3-Month U.S. Treasury Bill Index. For earlier periods, substitutions are used where needed, and historical averages are calculated from January 1970 onward where data are available.
Schwab also notes that inflation, as measured by CPI, has cooled from pandemic peaks but remains above central bank targets. Their long-run inflation forecast sits at 2.4%, and they see the U.S. dollar gradually weakening ahead after the first half of 2025's decline. None of this is a flashing-red call to overhaul portfolios. It is a reminder to keep a long horizon, know what you own, and make diversification work for you across geographies and asset types.
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