January 28, 2021 | Vanguard Perspective
Our 10-year, annualized, nominal return projections, as of September 30, 2020, are shown below. 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.
|Equities||Return projection||Median volatility|
|U.S. real estate investment trusts||3.3%–5.3%||19.5%|
Global equities ex-U.S. (unhedged)
|Fixed income||Return projection||Median volatility|
|U.S. aggregate bonds||0.7%–1.7%||4.0%|
|U.S. Treasury bonds||0.3%–1.3%||4.1%|
|U.S. credit bonds||1.3%–2.3%||5.6%|
|U.S. high-yield corporate bonds||2.7%–3.7%||10.3%|
|U.S. Treasury Inflation-Protected Securities||0.4%–1.4%||6.3%|
|Global bonds ex-U.S. (hedged)||0.5%–1.5%||2.4%|
|Emerging markets sovereign||2.3%–3.3%||10.5%|
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 September 30, 2020. Results from the model may vary with each use and over time. For more information, see the Notes section.
Source: Vanguard Investment Strategy Group.
Early-winter growth in COVID-19 cases hasn’t materially changed Vanguard's assessment of economic prospects in the United States since publication of our 2021 economic outlook, though we’re closely watching the timetable for vaccine rollout.
A surge in COVID-19 cases and resulting restrictions on economic activity has led Vanguard to temper our forecast for 2021 GDP in the euro area. We now expect the euro area economy to grow around 4.5% in 2021, lower than our 2021 forecast for growth around 5%.
The economy in China grew by 2.3% in 2020, according to China's National Bureau of Statistics, the only full-year growth that any major economy is likely to register for the year.
Vanguard foresees 2021 economic growth around 6% for emerging markets as effects of the pandemic and progress of vaccine rollout—sure to lag behind that of developed markets—remain central themes.
Vanguard doesn't foresee a prolonged period of job losses, with a return to job growth perhaps as early as January and average monthly job creation around 250,000 for all of 2021.
Given our expectation for a slow recovery in demand amid pandemic containment efforts, Vanguard continues to expect monetary policy to remain loose into 2021, with risks skewed toward further easing.
We expect some inflation volatility in the near-to-medium term as economic activity resumes and price comparisons with weak year-earlier numbers temporarily push inflation above the Fed's 2% target.