Vanguard CEO Mortimer "Tim" Buckley and two top strategists at the firm said investors should expect the stock market to post far more modest returns over the coming decade compared with recent years while offering a guarded but positive outlook for the global economic recovery.
Over the next decade, investors should expect 2% to 4% U.S. equity market returns annually, the Vanguard panel said. That's far below last year, when "we had a return in the S&P 500 of close to 28%," said chief investment officer Greg Davis, who joined Buckley.
"Those are not sustainable returns," Davis added. "We were fortunate in terms of what the equity markets produced for the last decade. It is unlikely that we will see the same type of returns going forward."
Sara Devereux, global head of fixed income, completed the trio, who appeared to take online questions from audience participants. Vanguard's forecast for stock market gains is well below Wall Street consensus: a Reuters poll of strategists believe the S&P 500 would gain 7.5% in 2022 to finish at 4,910.
With the pandemic remaining a threat, policymakers will effect the recovery by how they go about removing support and stimulus packages enacted to combat the pandemic-driven downturn, the Vanguard executives said in their one-hour webinar broadcast Monday evening.
The tremendous amount of fiscal and monetary policy support in the marketplace has helped get the U.S. economy running again. But the firm sees "more moderate economic growth both in the U.S. and Europe," Davis said. "We are expecting about 4% or so in terms of economic growth. Even places like China that have historically had gangbusters-type economic growth, we are expecting growth to slow down to around 5% or so."
Vanguard's forecast is higher than others: Goldman Sachs economists lowered their forecasts for 2022 U.S. gross domestic product growth to 2% in the first quarter from 3% previously, citing the failure to pass the federal Build Back Better bill.
Vanguard expects inflation to moderate over the "next couple of years. We are not expecting the type of inflationary environment we saw in the 1970s where inflation was rising in double-digit rates."
Vanguard's muted expectations for investors extended to bonds. The Federal Reserve has signaled it will start increasing interest rates, and as a result "our return expectations for fixed income ratcheted up a small amount but we are expecting 1.5%-2.5% over the next decade for the broad-based fixed income category."
Vanguard is modifying and will phase out a popular retiree medical benefit after backing away from cutting it entirely