Monthly market perspectives
April 26, 2022
We expect the Federal Reserve to raise short-term interest rates by 150–200 basis points in 2022. Risks to U.S. growth from oil prices have moderated, and we still expect full-year GDP growth of around 3.5%. The U.S. unemployment rate should fall to its 3.5% pre-pandemic level in the second quarter and even further by year-end.
Asset-class return outlooks
Our 10-year, annualized, nominal return projections are shown below. The categories marked with an asterisk (*) reflect a February 28, 2022, running of the Vanguard Capital Markets Model® (VCMM) for broad equity and fixed income asset classes only. Outlooks for the remaining sub-asset classes reflect a December 31, 2021, running of the VCMM. Please note that the figures are based on a 1.0-point range around the rounded 50th percentile of the distribution of return outcomes for equities and a 0.5-point range around the rounded 50th percentile for fixed income.
Notes: These probabilistic return assumptions depend on current market conditions and, as such, may change over time.
IMPORTANT: The projections or 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 February 28, 2022, and December 31, 2021. Results from the model may vary with each use and over time. For more information, see the Notes section.
Source: Vanguard Investment Strategy Group.
Region-by-region outlook
United States
Recent developments have been consistent with Vanguard’s view for full-year GDP growth around 3.5% in the United States. We’re keeping a close eye, however, on interest rates, monetary policy, and their potential growth effects.
- Risks to growth specifically from oil prices have moderated in recent weeks, with oil trading within the $95 to $105 per barrel range that we see as consistent with above-trend 2022 GDP growth.
- GDP grew at an annual rate of 6.9% in the fourth quarter, up from 2.3% third-quarter growth, according to the Bureau of Economic Analysis’ final estimate.
- For all of 2021, real GDP grew by 5.7%, compared with a contraction of 3.4% in 2020, when the pandemic set in.
Euro area
The growth environment in the euro area is challenged by the war in Ukraine, the resulting higher energy prices, reduced confidence, and somewhat tighter financial conditions. We continue to foresee full-year growth in a range of 2.5% to 3%, lower than our outlook before the war for growth around 3.5%.
- Consumer confidence at its lowest since the start of the COVID-19 pandemic and diminished business confidence help inform our view, as do the somewhat offsetting effects anticipated from additional fiscal stimulus.
- For the fourth quarter, GDP grew by 0.3% on a seasonally adjusted basis compared with the third quarter.
China
Worsening COVID-19 outbreaks have led to lockdowns affecting more people in China than at any other point since 2020 and purchasing managers’ index readings imply that a sharp economic slowdown took hold in March.
- China set an official 2022 growth target “around 5.5%” at the early-March National People’s Congress, the lowest growth target it has ever set. Vanguard maintains its forecast for 2022 China growth around 5%.
- Fiscal and monetary stimulus early in the year boosted the economy in January and February, offsetting the March weakness.
Emerging markets
Vanguard continues to see economic growth around 5.5% in emerging markets broadly in 2022, but high food and energy prices related to the war in Ukraine place risks firmly to the downside.
- Energy prices have risen steadily since the start of the year but have moderated at elevated levels recently. And although higher commodities prices do benefit some emerging economies, they’re a negative taken in the aggregate.
- Higher food prices have stoked tensions in some emerging markets.
- Expectations for central bank rate cuts next year in economies that have raised rates this year speak to the slowdown risk.
Energy, food, and housing costs drive inflation higher
The Consumer Price Index (CPI) in the United States rose by 8.5% in March compared with a year earlier, higher than a 7.9% year-on-year gain in February. That gain alongside a seasonally adjusted month-on-month gain of 1.2% was largely in line with market expectations.
- Gasoline, food, and shelter contributed the most to the broad increase. Core CPI, which excludes volatile food and energy prices, rose by 6.5% compared with a year earlier.
- Separately, the core Personal Consumption Expenditures Price Index (PCE), the Federal Reserve’s preferred inflation indicator in considering monetary policy, rose 0.4% in February, a slower pace of increase than the 0.5% reading in each of the four preceding months.
- Vanguard believes that core inflation may have neared its peak, but that elevated headline inflation, reflecting not just high energy prices but also accelerating food prices, is likely to be an increasingly important factor in the Federal Reserve’s policy calculus.
Inflation and wage pressures prompt Fed action
Accelerating inflation and a still-tightening labor market have led us to revise our view on the Federal Reserve. We foresee the equivalent of six to eight 25-basis-point hikes to the federal funds rate target in 2022, with the potential for one or two 50-basis-point hikes in the mix. (Any 50-point hike would count as two of our anticipated 2022 hikes.)
- The change of view brings forward anticipated rate hikes from 2023 into 2022. We continue to foresee a terminal rate around 3%, though we’re evaluating inflation, wage, and labor-market conditions for evidence that an even higher terminal rate may be in order.
- As early as its May 4 meeting, the Fed could announce that it will start to reduce its balance sheet by a level that would quickly rise to as much as $95 billion per month.
- Should investors adjust their portfolios in response to the U.S. Federal Reserve enacting the first in what is likely to be a series of interest rate hikes? For most investors, the answer will be no, other than regular rebalancing. But history shows that certain sub-asset classes have consistently outperformed during rising real rate environments (See chart below).
- The current environment may present opportunities for those investors who have the ability and willingness to take some active risk and be a little more targeted in their approach.
Prolonged and persistent periods of real rate increases favor some sub-asset classes
Sources: Vanguard calculations, based on data from the U.S. Treasury, the U.S. Bureau of Economic Analysis, Bloomberg; CRSP; Kenneth R. French's website, at mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html; Robert Shiller's website, at aida.wss.yale.edu/~shiller/data.htm; Standard & Poor's; MSCI; Dow Jones; and Russell, as of December 31, 2021.
Past performance is no guarantee of future returns.
The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Unemployment should continue falling
The unemployment rate in the United States fell to 3.6% in March, just a shade above its pre-pandemic low, as job creation remained strong.
- Vanguard expects the unemployment rate to fall to its 3.5% pre-pandemic level in the second quarter and even further by year-end.
- Job resignations—as measured by the “quits” rate—are likely to remain high through 2022, which would continue to feed upward pressure on wage growth.
Market perspectives: May 2022
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Notes:
- All investing is subject to risk, including possible loss of principal. Diversification does not ensure a profit or protect against a loss.
- Prices of mid- and small-cap stocks often fluctuate more than those of large-company stocks.
- High-yield bonds generally have medium- and lower-range credit quality ratings and are therefore subject to a higher level of credit risk than bonds with higher credit quality ratings.
- Investments in bonds are subject to interest rate, credit, and inflation risk.
- Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets.
- IMPORTANT: 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. VCMM results will vary with each use and over time.
- The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.
- The Vanguard Capital Markets Model is a proprietary financial simulation tool developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.
FAQs
What is the economic and investment outlook for 2023? ›
Global growth is projected to fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023, then rise to 3.1 percent in 2024. The forecast for 2023 is 0.2 percentage point higher than predicted in the October 2022 World Economic Outlook (WEO) but below the historical (2000–19) average of 3.8 percent.
What is the economic outlook for 2023 Vanguard? ›We forecast GDP growth to end 2022 around 3.0%, well below the historical average and the official “around 5.5%” target. For 2023, we foresee GDP growth accelerating to around 4.5%, driven by a modest loosening in the zero-COVID policy and a stabilizing real estate sector.
What is the 2023 Outlook for Emerging Markets? ›The outlook for emerging market economies in 2023 will largely be dictated by inflation. Eastern Europe, Latin America, and much of Africa have faced a more pronounced inflationary cycle over the last year. Higher interest rates amid the spike in cost of living is expected to weaken domestic demand in these regions.
What is the outlook for international growth funds? ›Description: The January 2023 World Economic Outlook Update projects that global growth will fall to 2.9 percent in 2023 but rise to 3.1 percent in 2024. The 2023 forecast is 0.2 percentage point higher than predicted in the October 2022 World Economic Outlook but below the historical average of 3.8 percent.
Should I wait to invest until 2023? ›Use this time to your advantage.
With falling stock prices and so much economic uncertainty right now, many may be wondering if it's best to delay their investing until the new year. Simply put, the answer is no -- you should not stop investing until 2023.
The large economic forces make for a positive consumer spending outlook for 2023, though one looking less rosy as the year moves on. By 2024, however, consumers will have less money to spend from current earnings and no excess savings left over, so expect a harsh downturn in discretionary expenditures.
What happens if Vanguard collapses? ›In the unlikely event that we become insolvent, your money and investments would be returned to you as quickly as possible, or transferred to another provider. This is because your money and investments are held separately from our own.
What returns will Vanguard expect next 10 years? ›From a U.S. investor's perspective, our Vanguard Capital Markets Model® projects higher 10-year annualized returns for non-U.S. developed markets (7.2%–9.2%) and emerging markets (7%–9%) than for U.S. markets (4.7%–6.7%).
What is the best Vanguard fund for 2023? ›- The Best Vanguard ETFs of February 2023.
- Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
- Vanguard S&P 500 Index Fund ETF (VOO)
- Vanguard Emerging Markets Government Bond ETF (VWOB)
- Vanguard Value Index Fund ETF (VTV)
- Vanguard Total International Stock Index Fund ETF (VXUS)
Emerging Markets Outlook
At 2.9% in 2023, EM growth looks to remain well below its pre-pandemic trend, slowing modestly from 2022.
What is the investment outlook for 2023 Morgan Stanley? ›
2023 Outlook: The Year Ahead for Markets. Investors can expect weaker growth, less inflation and an end to rate hikes, creating bright spots for bonds, defensive stocks and emerging markets. Morgan Stanley experts share insights on what may lie ahead.
What is happening to the stock market in 2023? ›After ending the year down nearly 20%, the S&P 500 index is in the green for 2023. And the Nasdaq Composite — which plunged 33% in 2022 — is up more than 4.5% this year. So when will stocks fully recover from the bear market? Many experts appear optimistic it will happen in 2023.
What is the outlook for money market funds? ›The national average rate for savings accounts will be 0.29 percent by the end of 2023, McBride forecasts, while predicting an average of 0.34 percent for money market accounts.
What is the outlook for Growth fund of America? ›Based on our forecasts, a long-term increase is expected, the "American Funds Growth Fund Of America A" fund price prognosis for 2028-03-01 is 71.780 USD. With a 5-year investment, the revenue is expected to be around +36.33%. Your current $100 investment may be up to $136.33 in 2028.
What is the World economic Outlook by International Monetary Fund? ›Global growth is now expected to fall from 3.4 percent in 2022 to 2.9 percent this year, before rebounding to 3.1 percent in 2024. The 2023 growth projection is up from an October estimate of 2.7 percent, as the IMF sees far fewer countries facing recession this year and does no longer anticipates a global downturn.
Should I pull my money out of the stock market? ›Why the stock market can be safer. Although the stock market produces volatile returns, it has a long history of outpacing inflation in the long run. So, if the money you have invested in the stock market isn't going to be used in the next few years, it's likely safer to keep your money invested than to take it out.
Will stock market recover in 2024? ›“Early 2024 is in the realm too, but stocks typically begin their recovery after the Fed stops tightening.” Sam Stovall, chief investment strategist, CFRA Research, also anticipates a second-half time frame for a turnaround and expects a recession to materialize in the near term.
Will 2023 be a bull or bear market? ›The bear market is finished as U.S. stocks climb in 2023, yet the upside is limited, according to Wells Fargo & Co. “The bear market is over, but it is not the great reflation,” said Wells Fargo equity analysts led by Christopher Harvey in a research note Monday.
Will the recession last all of 2023? ›That's the prediction of The Conference Board. But some economists project the U.S. will avoid a contraction in GDP altogether.
Will the US have a recession in 2023 or 2024? ›ITR Economics is forecasting that a macroeconomic recession will begin in late 2023 and persist throughout 2024. Business leaders recently had to lead their companies through the recession during the COVID-19 pandemic, and some were even in leadership positions back in 2008, during the Great Recession.
Why investors are pulling money from Vanguard? ›
When the market cratered, investors withdrew $16.4 billion from Vanguard's index mutual funds. What accounts for remaining index mutual fund outflows? Johnson says it could be clients pulling out money because they're retiring, or because they're negatively affected by the pandemic.
Why not invest in Vanguard? ›Vanguard is the king of low-cost investing, making it ideal for buy-and-hold investors and retirement savers. But beginner investors and active traders will find the broker falls short despite its $0 stock trading commission, due to the lack of a strong trading platform and accessible educational resources.
Is my money safe with Vanguard? ›Vanguard is covered by the Financial Services Compensation Scheme (FSCS). This means you may be entitled to compensation up to £85,000 in the unlikely event that we're unable to meet our financial obligations to you. These limits may change in future. You can find out more at www.fscs.org.uk.
Is Vanguard safe long term? ›Low-cost Vanguard funds are excellent long-term investments for beginner and advanced investors alike.
Why did Vanguard 2025 drop? ›It was caused by a huge capital gain payout. Basically, investors were all paid a large chunk of cash and the share price was lowered to reflect that payment.
Is Vanguard still a good investment company? ›Vanguard: Best for
Many investors know Vanguard for its stable of low-cost funds, but it also offers a brokerage that may be a good fit for those looking to hold funds for the long term. Thousands of funds are available without commissions or transaction fees, which means more of the return will end up in your pockets.
- Vanguard Target Retirement 2060 Fund (VTTSX)
- Vanguard Target Retirement 2025 Fund (VTTVX)
- Vanguard LifeStrategy Conservative Growth Fund (VSCGX)
- Vanguard LifeStrategy Income Fund (VASIX)
- Vanguard Total Stock Market ETF (VTI)
- Vanguard Total International Stock ETF (VXUS)
- Vanguard Ultra-Short Bond ETF (VUSB)
- High-yield savings accounts.
- Series I savings bonds.
- Short-term certificates of deposit.
- Money market funds.
- Treasury bills, notes, bonds and TIPS.
- Corporate bonds.
- Dividend-paying stocks.
- Preferred stocks.
Stocks have continued their rebound into 2023, delivering one of the best openings to a calendar year since January 2000. The buoyant mood intensified last week following the Federal Reserve's widely expected quarter-point interest rate hike.
How much will the stock market rebound in 2023? ›Most stock market forecasts for 2023 see moderate improvement. UBS targets a year-end 2023 S&P 500 at 3900 and KKR sees it at 4150. CFRA expects a 2.9% gain, which would put the S&P over 3900. It closed the year around 3840.
Will stocks rise or fall 2023? ›
Stocks could soar 10% by mid-2023, but investors should expect a decade of flat markets after that, major investment bank says. Traders at the New York Stock Exchange on Jan. 3, 2023.
What investments will do well in 2023? ›- High Yield Savings Accounts.
- Short-Term Certificates of Deposits.
- Short-Term Government Bonds Funds.
- S&P 500 Index Funds.
- Dividend Stock Funds.
- Real Estate & REITs.
- Cryptocurrency.
- Energy. Information. technology. Health care. Utilities.
- Real estate. Materials. Industrials. Communication. services.
- Consumer. staples. Consumer. discretionary. Financials.
| Product | Mint / Mint Mark | Mintage* |
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| 2023-S Proof Morgan Silver Dollar | San Francisco – S | 400,000 |
| 2023-S Proof Peace Silver Dollar | San Francisco – S | 400,000 |
| 2023-S Morgan and Peace Silver Dollar Reverse Proof Set | San Francisco – S | 250,000 |
Unfortunately, analysts are anticipating negative overall earnings growth will continue in the first half of 2023. Analysts project S&P 500 earnings will drop 5.7% year-over-year in the first quarter and another 3.7% in the second quarter.
Will investments go up 2023? ›Stocks could soar 10% by mid-2023, but investors should expect a decade of flat markets after that, major investment bank says. Traders at the New York Stock Exchange on Jan. 3, 2023.
Will there be a major recession in 2023? ›In a recent poll of economists, the World Economic Forum found that nearly two-thirds of the respondents believe there will be a recession in 2023. But here's the good news: Many analysts expect a relatively mild and short recession, or what is sometimes referred to as recession with a small r.
What is the best thing to invest in right now? ›- High-yield savings accounts.
- Certificates of deposit (CDs)
- Money market funds.
- Government bonds.
- Corporate bonds.
- Mutual funds.
- Index funds.
- Exchange-traded funds (ETFs)
- High-yield savings accounts.
- Series I savings bonds.
- Short-term certificates of deposit.
- Money market funds.
- Treasury bills, notes, bonds and TIPS.
- Corporate bonds.
- Dividend-paying stocks.
- Preferred stocks.
Recession In 2023, Bear Market Is About Inflation | The Watch List| TD Ameritrade Network. "Stock market today is seeing a decline with volatility, which can be attributed to the Federal Reserve raising interest rates and inflation. The recession lip service is not driving the market, but it could occur in 2023.
Should I wait for recession to invest? ›
Before and early in a recession, stock prices often fall, making it a good time to buy. If you're one who continues to dollar-cost average into your 401(k) plan, IRA, or other investment accounts, buying as stock prices fall pays off in the long run.
How long will 2023 recession last US? ›That's the prediction of The Conference Board. But some economists project the U.S. will avoid a contraction in GDP altogether.
How bad will the 2024 recession be? ›ITR Economics is forecasting that a macroeconomic recession will begin in late 2023 and persist throughout 2024. They expect that the 2024 recession will be a relatively mild one for U.S. Industrial Production, but will not be mild for every industry.