Market perspectives - November 2019
24 October 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*:
- The likelihood of a shallow recession in 2020 is more than 50%, but the risk of a more severe recession is only 10%.
- The Fed may cut rates once more in 2019 and make at least one further cut in 2020.
- The U.S.-China trade breakthrough leaves the thorniest issues unresolved.
- Our forecast for real U.S. economic growth in 2020 has been cut to 0.5%–1.5%.
- We expect unemployment rates to remain broadly stable and labor markets to remain relatively tight in the year ahead.
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 and policy uncertainty.
- In the United States, Vanguard now sees the likelihood of a shallow recession in 2020 being above 50%, with the risk of a more severe recession remaining a 10% probability.
- We’ve cut our forecast for real U.S. economic growth in 2020 to 0.5%–1.5%—a more bearish view than economists’ consensus estimates.
- Vanguard is also more bearish than the consensus in our view of growth in the euro area, where manufacturing weakness is spilling over into supply chains and the services sector, especially in Germany, which we expect to enter a technical recession.
- Vanguard places a 35%–40% probability on a euro-area recession over the next 12 months.
- We see risk to the downside for 2020 growth in China without further stimulus or a rollback in tariffs but a meaningful U.S.-China trade deal could result in greater-than-anticipated growth.
Implied 12-month recession probability
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 17 October 2019.
The contents of this document and any attachments/links contained in this document are for general information only and are not advice. The information does not take into account your specific investment objectives, financial situation and individual needs and is not designed as a substitute for professional advice. You should seek independent professional advice regarding the suitability of an investment product, taking into account your specific investment objectives, financial situation and individual needs before making an investment.
The contents of this document and any attachments/links contained in this document have been prepared in good faith. Please note that the information may have become outdated since its publication, and any information sourced from third parties is not necessarily endorsed by The Vanguard Group, Inc., and all of its subsidiaries and affiliates (collectively, the “Vanguard Entities”).
This document contains links to materials which may have been prepared in the United States and which may have been commissioned by the Vanguard Entities. They are for your information and reference only and they may not represent our views. The materials may include incidental references to products issued by the Vanguard Entities.
The information contained in this document does not constitute an offer or solicitation and may not be treated as an offer or solicitation in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The Vanguard Entities may be unable to facilitate investment for you in any products which may be offered by the Vanguard Group, Inc.
No part of this document or any attachments/links contained in this document may be reproduced in any form, or referred to in any other publication, without express written consent from the Vanguard Entities. Any attachments and any information in the links contained in this document may not be detached from this document and/or be separately made available for distribution.
This document is being made available in Hong Kong by Vanguard Investments Hong Kong Limited (CE No. : AYT820) (“Vanguard Hong Kong”). Vanguard Hong Kong is licensed with the Securities and Futures Commission (“SFC”). The contents of this document have not been reviewed by the Securities and Futures Commission in Hong Kong. Investment involves risk. Past performance is not indicative of future results. Investors are advised to consider their own investment objectives and circumstances. If you are in any doubt, you should seek professional advice.
Copyright, trademark and other forms of proprietary rights protect the contents of this document. You may not copy, publish and/or distribute any derivative works from the information from this document.