Market perspectives - December 2019
25 November 2019 | Markets and economy
In this latest Market Perspectives issue, we highlight the Vanguard house view on a number of current macroeconomic and market topics including monetary policy, economic growth, currencies, trade, asset returns and more.
Key highlights for this month*:
- A shallow recession may be in the cards for the U.S. in 2020, with growth around 1%.
- The Fed may cut rates once or twice before the end of 2020.
- U.S.-China trade negotiations will drag on, with risks skewed to the downside.
- Inflation will remain below the Fed’s 2% target.
- We expect unemployment rates to remain broadly stable, or possibly rise in weaker countries.
Growth expected to slow down in the U.S. and abroad next year
- Vanguard expects global growth to continue to soften over the next 12 months, owing to trade tensions, policy uncertainty, and fading U.S. fiscal stimulus.
- We're more bearish than consensus in multiple locations, including the United States, the euro area, the United Kingdom, Australia, Japan, and China.
- In the United States, Vanguard's baseline scenario of a shallow recession in 2020 is unchanged. Such a recession, amid weakening sentiment and persistent uncertainty, would be characterized by growth around 1.0%. (Recessions—the troughs of economic cycles—don't necessarily require economic contraction).
- We've downgraded our view on first-half 2020 GDP growth in China slightly to 5.9% from 6% based on our research about policy uncertainty, and see growth slowing to 5.8% in the second half.
- Vanguard's view on growth in the euro area is unchanged, at a mere 1.0% for 2020. Manufacturing activity continues to contract, particularly in Germany, which did manage to avoid falling into a technical recession.
U.S., euro area, and China 2020 growth estimates
Asset class return outlooks
The 10-year annualized nominal return projections, based on market conditions as of June 30, 2019, are as follows:
These probabilistic return assumptions depend on current market conditions and, as such, may change over time. The projections and other information generated by the Vanguard Capital Markets Model® regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from the VCMM are derived from 10,000 simulations for each modeled asset class. Simulations are as of June 30, 2019. Results from the model may vary with each use and over time.
Source: Vanguard Investment Strategy Group.
*This monthly report represents the Vanguard house view as of 18 November 2019.
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