Vanguard CEO, top execs offer lackluster stock market forecast for 2022 and beyond

Erin Arvedlund, The Philadelphia Inquirer on

Published in Business News

Devereux said she expected that bond returns outside the U.S. "will be a little lower than [in] the U.S. That said, we do find value in buying hedged global bonds because there is a diversification benefit. It helps insulate against results and risks specific to the U.S."

She expects interest rates "to be going higher, and for a muni investor, this gives them potential for tax-exempt income. I would summarize it by saying, yes, returns are expected to be low in fixed-income markets, but if we learned one thing during the COVID-19 crisis, it is that power of bonds as insulation when the equity market is selling off."

Inflation also expected to ebb

While the latest inflation growth totaled roughly 7% year-over-year, "we will go back to an environment where inflation will be in the 1.5%-2.5% range," Davis said. "The market is pricing in 2.5% inflation for the next decade. That is in our wheelhouse of what we expect."

One strategist agrees that above-average inflation won't persist. "Supply chain disruptions will likely spill over into the new year, but their impact should eventually subside," said Jason Pride, chief investment officer for Private Wealth at Glenmede Trust in Philadelphia.

Ongoing supply chain disruptions "remain a key culprit behind hotter-than-normal inflation. Clearing the backlog of shipments may be key to wrestling inflation under control and boosting inventories," Pride added.

Others such as Matt Topley, chief investment officer at Lansing Street Advisors in Ambler, said Vanguard's inflation forecast is too low: "Inflation will be a lot higher in the next two to three years than Vanguard's 1.5%-2.5%, closer to 4%. I can't say long-term, but what's going up like rents and wages are hard to reverse, even when supply chain resolves."

Disdain for meme stocks and crypto


Asked about meme culture's effect on Wall Street and individual investors, Buckley urged ignoring the hype.

"You will probably run out of money before you can cash out on these trends. What do you do? You ignore them," he said.

Buckley also took audience questions about cryptocurrencies and whether Vanguard would offer any sort of crypto-invested fund.

"A company has underlying earnings, so you know how much you are paying," he said. "Crypto doesn't have that. It is simply a supply-demand marketplace. As long as demand increasingly exceeds supply, you will get a nice return. But you are depending on that."

Crypto is "hugely popular, highly volatile, but we don't see why it would be in a typical Vanguard portfolio. If you are going to invest in it, do it outside of the money you have dedicated to your long-term goals."

Environmental, social and governance

Regarding portfolios based on environmental, social, and governance [ESG] factors, Davis called it a popular segment of the marketplace. "There are some investors that prefer not to have exposure to tobacco, alcohol, firearms, things of that nature. ESG products allow you to express those views, and Vanguard has funds that exclude those sectors."

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