Market perspectives

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Market perspectives

Vanguard Perspective


March 27, 2024

The views below are those of the global economics and markets team of Vanguard Investment Strategy Group as of March 21, 2024.

Key highlights

The Fed increased its forecast for real GDP growth and inflation.

We believe the Fed may not be in position to cut rates at all in 2024.

Our recent U.S. growth upgrade could signal positive implications for Mexico and Latin America.

Projected returns

Vanguard’s outlook for financial markets

Our 10-year annualized nominal return and volatility forecasts are shown below. They are based on the December 31, 2023, running of the Vanguard Capital Markets Model® (VCMM). Equity returns reflect a 2-point range around the 50th percentile of the distribution of probable outcomes. Fixed income returns reflect a 1-point range around the 50th percentile. More extreme returns are possible. 


Return projection

Median volatility

U.S. equities



U.S. value



U.S. growth



U.S. large-cap



U.S. small-cap



U.S. real estate investment trusts



Global equities ex-U.S. (unhedged)



Global ex-U.S. developed markets equities (unhedged)



Emerging markets equities (unhedged)



Fixed income

Return projection

Median volatility

U.S. aggregate bonds



U.S. Treasury bonds



U.S. intermediate credit bonds



U.S. high-yield corporate bonds



U.S. Treasury Inflation-Protected Securities



U.S. cash



Global bonds ex-U.S. (hedged)



Emerging markets sovereign bonds



U.S. inflation



Notes: These probabilistic return assumptions depend on current market conditions and, as such, may change over time.

Source: Vanguard Investment Strategy Group.

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 December 31, 2023. Results from the model may vary with each use and over time. For more information, see the Notes section at the end of this article.


Region-by-region outlook

United States

United States

At its last meeting on March 20, the Fed left its federal funds rate target unchanged in a range of 5.25%–5.50%. The Fed increased its forecasts for real GDP growth and inflation.

  • The economy expanded by 2.5% on an average annual inflation-adjusted basis in 2023, higher than the 1.9% increase registered in 2022. For 2024, we foresee growth of around 2.0%, higher than our initial growth estimate, in part because of the continued runway for consumer demand.
  • The unemployment rate rose to 3.9% in February, up from 3.7% in January, but in our view the labor market remains on solid footing. We expect that labor supply strength and job growth will continue for a good part of 2024 before gradually subsiding and the unemployment rate ending 2024 at around 4.0%.
  • Core inflation, as measured by the Personal Consumption Expenditures Price Index, edged down to 2.8% year over year in January from 2.9% in December. We continue to believe that the last mile to 2.0% inflation will remain challenging and that sticky services inflation will take time to unwind.

The U.S. economy has proved resilient despite Federal Reserve efforts to cool it to rein in inflation by keeping interest rates elevated, as noted in a recent commentary by Vanguard’s chief economist for the Americas, Roger Aliaga-Díaz. Given the economy’s continued strength and still-stubborn inflation, we believe that the Fed may not be in position to cut rates at all in 2024.

A continuation of U.S. economic exceptionalism

Better-than-expected workforce and productivity gains are behind the U.S. economy’s continued vigor. A combination of productivity growth of 2.7% and the addition of 3.5 million people to the workforce more than offset the effects of Fed monetary policy tightening in 2023. Household balance sheets bolstered by pandemic-related fiscal policy and a virtuous cycle where job growth, wages, and consumption fuel one another provide additional support. Although 2023 growth exceeded expectations in many other developed markets, none rivaled the United States’ above-trend growth. The following chart highlights the differences in GDP progressions among the U.S., the euro area, and the United Kingdom.


Growth remains above trend in the U.S. and below trend in the euro area and U.K.

A figure shows the real GDP of the United States, the Euro area, and the United Kingdom beginning in 2018. The real GDP is indexed to 100 at the end of the first quarter of 2020, which is the start of the COVID-19 pandemic. The real GDP of all three countries declined sharply in 2020, with the United Kingdom experiencing the largest decline. The real GDP of the United States has recently been growing above its pre-COVID-19 trend and is expected to continue doing so through the end of 2024, whereas the real GDP of the Euro area and the United Kingdom are currently growing below their pre-COVID-19 trends and are expected to continue doing so through the end of 2024.

Notes: The charts index real GDP to 100 at the first quarter of 2020 for comparative purposes. 

Sources: Vanguard calculations, using data as of March 6, 2024, from the U.S. Bureau of Economic Analysis, Eurostat, and the U.K. Office for National Statistics.

Growth has been below the pre-COVID-19 trend in the euro area and the U.K., where productivity has waned and policy has become restrictive. We’ve lowered our forecasts for the year-end unemployment rate in both regions amid stronger-than-expected employment gains; however, falling job vacancies and shorter workweeks are gradually loosening labor markets in both regions.


Euro area

Although the euro area avoided falling into recession in the fourth quarter of 2023, we continue to expect 2024 growth in a below-trend range of 0.5%–1.0% amid still-restrictive monetary and fiscal policy and the lingering effects of Europe’s energy crisis on industry.

  • We foresee the European Central Bank initiating a deposit facility rate-cutting cycle in June, with 25-basis-point cuts potentially at each of its final five 2024 policy meetings leading to a year-end range of 2.5%–3.0%.  (A basis point is one-hundredth of a percentage point.)
  • An upside surprise to initial inflation data for February effectively ruled out an April start to rate cuts. However, the confluence of moderating wage growth, inflation expectations that remain in check, and lackluster demand supports our expectation for headline inflation to fall to 2% by September 2024 and core inflation to reach that target by December.
  • The labor market may be softer than the unemployment rate would suggest as job vacancy rates, though still high, have receded, labor hoarding remains elevated, and the number of hours worked has stagnated. We have downgraded our year-end 2024 unemployment rate forecast to 6.5%.

United Kingdom

United Kingdom

The U.K. economy fell into recession in late 2023, but a monthly estimate for growth in January suggested the recession could be short. That said, we have lowered our forecast for economic growth to 0.3% for full-year 2024.

  • The Bank of England (BOE) held the bank rate steady at 5.25% for a fifth consecutive meeting in March as it waits for further evidence that inflationary pressures are subsiding before beginning to cut. In our base case, we foresee a first policy rate cut in August, and a total of 100 basis points—or 1 percentage point—of cuts in 2024.
  • Headline inflation slowed to 3.4% in February year over year, the smallest annual gain since September 2021. We foresee it falling to just below 2.0% by the end of 2024.
  • The unemployment rate was 3.9% in the November–February period, marginally higher than in the preceding rolling three-month period. As in the euro area, the labor market’s gradual loosening appears mainly driven by soft factors such as reduced vacancies and fewer hours worked, rather than an increase in unemployment. As such we have lowered our year-end 2024 unemployment rate forecast to a range of 4.0%–4.5%.



The economy is showing early signs of momentum toward what is likely to be an uneven recovery. Although supply-side factors such as industrial production and fixed asset investment recently exceeded consensus estimates, demand-side factors such as retail sales fell short of expectations.

  • That supply-demand imbalance is just one factor that may make it difficult for China to reach its official economic growth target of “around 5%” for 2024. Other factors include persistent economic challenges stemming from an extended property downturn and base effects, or comparisons to year-earlier numbers, which will be higher this year.
  • Consumer prices broke a four-month string of annual declines in February, but we don’t believe that spells the end for China’s recent dip into deflation. Rather, we attribute the higher prices in February to easy year-earlier comparisons. Lunar New Year holidays occurred in February this year; in 2023, they occurred in January.
  • To mitigate deflationary pressure, we expect the People’s Bank of China to ease its policy rate from 2.5% to 2.2% in 2024 and to cut banks’ reserve requirement ratios.

Emerging Markets

Emerging markets

We continue to see GDP growth around 4.0% for global emerging markets in 2024, led by growth around 5.0% for emerging Asia. We anticipate growth in a range of 2.0%–2.5% for emerging Europe and Latin America, though our recent U.S. growth upgrade could signal positive implications for Mexico and all of Latin America.

  • For Mexico, we are anticipating full-year 2024 economic growth of 1.5%–2.0%, core inflation falling to 3.6%–3.8% by year-end, and the overnight interbank rate being cut to 9.0%–9.5% by year-end.


Market Perspectives

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All investing is subject to risk, including the possible loss of the money you invest.

Investments in bonds are subject to interest rate, credit, and inflation risk.

Investments in stocks and 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 (VCMM) 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.