Market perspectives - November 2019

24 October 2019 | Markets and economy


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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

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:

Asset class return outlooks

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.

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*This monthly report represents the Vanguard house view as of 17 October 2019.


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