KKR explores how aggressive fiscal and monetary policy are pushing the global economy into a reflationary regime, reshaping asset allocation and return expectations. They argue growth is accelerating faster than prior cycles, but with rising inequality and potential volatility. Notably, they lift S&P 500 targets while still warning of lower long-term returns.
Testing The Limits Of Reflation
KKR
Henry McVey
Research
28 Pages
Key Takeaways
Equity Outlook Raised: S&P 500 fair value increased to 4,320 for 2021 from 4,050, with EPS estimates rising to $185 versus $174 prior, reflecting stronger nominal GDP growth.
Rates Moving Higher: U.S. 10-year yield forecast lifted to 1.75% in 2021 and 2.25% in 2022, driven by fiscal stimulus, supply disruptions, and accelerating economic activity.
Returns Structurally Lower: Despite growth, forward returns are pressured by high margins and valuations, leading to reduced 5-year return expectations and a shift toward real assets.
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