Market perspectives - October 2019

27 September 2019 | Markets and economy


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In this new Market Perspectives monthly series, 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 risk of a global or major regional recession is higher than normal.
  • The Fed isn’t expected to make further policy changes in 2019.
  • A permanent tariff regime for U.S.-China trade is likely.
  • Labor markets should remain relatively tight and unemployment rates stable in most major economies.
  • The outlook for global inflation is mixed, as a weaker global growth outlook is offset by upward pressure from tariffs.

Trade tensions and policy uncertainty hamper growth prospects

  • Investors are starting to worry that recession may be on the horizon. The risk of a global or major regional recession is not Vanguard’s base case, but it’s more elevated than normal.
  • Vanguard expects global growth to continue softening over the next 12 months.
  • Vanguard’s baseline case for China for the next 12 months sees the government delicately balancing growth and financial stability.
  • We believe that China will likely set its official growth target for 2020 early next year “around 6%,”.
  • In the euro area, Vanguard continues to see 2019 GDP growth at 0.8%. We place a 35% to 40% probability on a euro-area recession in the next 12 months.

U.S. and China second-half growth estimates

U.S. and China second-half 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:

U.S. and China second-half growth estimates

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 19 September 2019.


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