"Vanguard 2018 economic and market outlook"

[43210]

This actually came out a few weeks ago, but didn't see it mentioned here.
"Vanguard 2018 economic and market outlook"
https://investornews.vanguard/vanguard-2018-economic-and-market-outlook/
https://personal.vanguard.com/pdf/ISGVEMO.pdf [35 pg PDF]

It's an interesting read.

"...our expected return outlook for U.S. equities over the next decade is centered in the 3%–5% range, in stark contrast to the 10% annualized
return generated over the last 30 years."

"From a U.S. investor’s perspective, the expected return outlook for non-U.S. equity markets is in the 5.5%–7.5% range..."

"The return forecast for global fixed income is positive but muted, given our long-term outlook of restrained growth and inflation ... it is in the 2%–3% range for the next decade... Expected returns for many fixed income sub-asset classes appear more similar than differentiated compared with previous years, in part because of compressed credit spreads ... Elevated equity market risk points to credit risk being higher than duration risk in this environment."

These expected returns are nominal. And obviously there are large error bars.

 

[gcgang]

The outlook makes sense. Unfortunately, the markets often don't.

 

[robnplunder]

The outlook makes sense. Unfortunately, the markets often don't.

A lot can happen in a decade. Predicting "decade" at a time does not make sense to me given the past record.

 

[43210]

A lot can happen in a decade. Predicting "decade" at a time does not make sense to me given the past record.

What do you mean when you use the word "predict"?

 

[DrRoy]

"...our expected return outlook for U.S. equities over the next decade is centered in the 3%–5% range, in stark contrast to the 10% annualized
return generated over the last 30 years."

These expected returns are nominal. And obviously there are large error bars.

Predictions are pointless, but for planning purposes, I think that this expectation is wise. The drivers of population and productivity growth, plus the economic development of China that occurred over the last several decades would seem to be played out to a significant degree.

 

[audreyh1]

The outlook makes sense. Unfortunately, the markets often don't.

Yep. My usual quandary.

 

[FREE866]

Yes, I agree predicting 10 years out is futile.

I also feel that all these firms are like sheep and predict the same thing for the most part every year. Think about it--when has any major firm made a really bold % prediction to either the up or downside?

 

[OldShooter]

Yes, I agree predicting 10 years out is futile.

I also feel that all these firms are like sheep and predict the same thing for the most part every year. Think about it--when has any major firm made a really bold % prediction to either the up or downside?

Vanguard is no more likely to get it right than any of the other chattering monkeys. One of them, however, will get it right and be enthroned temporarily as the genius monkey.

Re drama, in "the signal and the noise" Nate Silver discusses high-profile pundits' economic projections. As it turns out, their predictions are less accurate than those of the less-prominent economists. The reason is that, to continue their employment they must make extreme and un-nuanced predictions. It is exactly these predictions that are most likely to be wrong.

If you think economic forecasting has any value at all, read Silver's book. If you are not interested in baseball, you can skip the first 100 pages without missing anything.

 

[43210]

I'm sure the Vanguard people are highly intelligent experts, that fully appreciate the limits of what they can do. That's why they state things probabilistically, with wide ranges.

You can't make perfect weather predictions either, but the attempt has value.

You just try to do the best you can with the available information, and make decisions accordingly.

 

[travelover]

People that can accurately predict, don't need to work. So, by default, virtually anyone paid to predict is a fraud.

 

[OldShooter]

... You can't make perfect weather predictions either, but the attempt has value. ...

Actually economic forecasting is not at all like weather forecasting, as Silver explains in in "the signal and the noise." The fact that short-term weather forecasting has some accuracy and some value in no way implies the same about economic forecasting.

 

[43210]

I think they make it clear that there is a significant degree of uncertainty, which is a given that anyone should realize. (Some of the comments make me wonder if some people are thinking that they are doing something completely different from what they are actually doing.)

Anyway, I find it interesting and actionable.
Don't expect (or rely on getting) high stock returns like in the past.
International stocks have more potential that domestic (after years of underperformance) so it's worth keeping an allocation in them.
Credit spreads are low, so it may not be a good time to be reaching for yield.

 

[kgtest]

Predictions are pointless, but for planning purposes, I think that this expectation is wise. The drivers of population and productivity growth, plus the economic development of China that occurred over the last several decades would seem to be played out to a significant degree.

Don't forget India.

 

[RetiredGypsy]

"The only function of economic forecasting is to make astrology look respectable."

- Ezra Solomon

 

[Totoro]

Don't forget India.

So far, India doesn't really matter. China's GDP is five times larger and 15% of current world GDP.

If they get going, a juggernaut it might become indeed with 1.3 billion people.

 

[KenZ71]

Kiplinger has some clear concise predictions

https://www.kiplinger.com/tool/business/T019-S000-kiplinger-s-economic-outlooks/index.php