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Big mutual fund companies don’t often make bold calls. So when they do, like Vanguard, it’s wise to pay attention.
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Vanguard, the giant mutual fund company that owns two-thirds of S&P 500 companies, said this week it expects a “global recession” by 2023. This is an inevitable fallout from the Federal Reserve’s push to contain inflation. says Vanguard’s recently released economic and market forecast for the coming year.
Many companies have released forecasts. But Vanguard is especially worth listening to. why? Jeff DeMaso, a consultant at Independent Vanguard, said the firm has a strong track record in making forecasts. Demaso in 2010 He analyzed Vanguard’s 10-year forecasts made in early 2013. Most of them were quite right.
What is Vanguard saying now?
Vanguard, famous for its long-term focus on index investing, says the current situation is very similar to what it was before the recession. That’s bad news. Looks like a recession is coming.
“Current and expected conditions mirror those of past global recessions,” the report said. “Severely deteriorating financial conditions, rising policy rates, energy concerns and a slowdown in trade volumes all point to the global economy heading into recession next year.”
Vanguard is calling for the biggest job losses to hit the tech and real estate sectors. And that makes sense. “They were among the strongest users of the zero rate environment,” the report said.
A move to contain inflation will work, says Vanguard. But not this year or next time. “Decreasing inflationary pressures coupled with labor markets and wage growth will take longer. Therefore, central banks can only reasonably achieve 2% inflation in 2024 or 2025,” Vanguard said.
And that means more pain for stocks. According to the report, stocks still haven’t fallen as much as they should have during the recession.
Why is vanguard opinion important?
It is worth listening to Vanguard as the predictions are often on target.
Vanguard in its 2013 report called for US stocks to grow between 6% and 9% over the next decade. That was spot on, DeMaso found. Vanguard’s “The Total World Stock Index (VTWAX) fund returned 8.9% over the 10 years ending in November, well within Vanguard’s forecast — a three-percentage-point expansion that’s grossly overstated.”
Similarly, Vanguard calls were also targeting US Treasury yields and bond yields. On bond funds, “the 12-month average return since the end of 2012 has fallen within Vanguard’s expected range of 1.7%,” DeMaso found. Vanguard calls for bond returns of 1% to 3%.
What does Vanguard say about protecting stocks?
What is Vanguard saying about stocks? It expects them to return from 4.7% to 6.7% annually over the next decade. That’s down from the 2013 call, but still healthy.
And the “silver lining?” Equity weakness is creating opportunity with equities, especially foreign and emerging markets.
“After a long time, our global equity outlook is improving due to low prices and high interest rates. Our expected return is 2.25 percent higher than last year,” Vanguard said.
“From a US dollar investor perspective, our Vanguard Capital Markets model projects 10-year annualized returns for non-US markets (7.2%–9.2%) and emerging markets (7%–9%) versus US markets (4.7%–6.7%).
Follow Matt Krantz on Twitter @Mattcrantz
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