Vanguard's Market Perspectives for 2020

What does Vanguard see for 2020? Here are a few highlights:

• Global growth slows in 2020 and sets the stage for a potential shallow recession in the US with growth around 1%;

• With a shallow recession possible, the Federal Reserve will need to cut interest rates once or twice in 2020;

• US-China trade tensions will continue as some larger scale structural trade issues still remain unresolved;

• Global and US inflation will remain muted due to slowing economic and wage growth; and

• US unemployment rates should remain stable or rise slightly due to a slowing labor market and muted wage pressures.

What do the above macro-economic perspectives mean for your portfolio going forward? Vanguard provides the following 10-year annualized nominal return projection estimates as a gauge:

Equities

Global equities ex-U.S. (unhedged) 6.5%–8.5%

U.S. equities 3.5%–5.5%

U.S. real estate investment trusts 2.5%–4.5%

Fixed income

U.S. bonds 1.5%–3.5%

U.S. Treasury bonds 1.0%–3.0%

Global bonds ex-U.S. (hedged) 1.0%–3.0%

U.S. credit bonds 2.0%–4.0%

U.S. high-yield corporate bonds 3.0%–5.0%

U.S. Treasury inflation-protected securities 1.0%–3.0%

U.S. cash 1.0%–3.0%

With US equities potentially returning between 3.5% and 5.5% and US bonds forecasted to return between 1.5-3.5%, it is a good time to make sure you have sufficient international exposure in your portfolio.

To see a mid-year 2020 Vanguard Economic Outlook update, click here.

If you have questions about your investment portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

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David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

The Fed decided not to raise rates in January 2019 . . .

So . . . Why did the Fed decide not to raise rates on January 30, 2019, and leave them at the 2.25%-2.5% range? I think the following quote from the Fed’s Statement sums it up best:

• "In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes….” [emphasis and deletions for clarity]

In other words the US economic slowdown, as well as China’s economic slowdown, mixed with the trade tariffs between these two powerhouse super-nations is enough to possibly, in and of itself, give pause to the Fed. Now throw in that the Consumer Price Index and the Personal Consumption Expenditures Index (indexes that the Fed uses to measure inflation) are slowing and/or plateauing, and you begin to understand why the Fed is easing up on their rate raising campaign. It also doesn’t help that the market has reacted negatively to past rate increases and Fed Minutes language in 2018; thereby, possibly placing a nagging overriding back-of-the-mind sub-conscious thought regarding further Fed rate increases.

The above is additionally supported by the fact that the Fed felt compelled to issue a separate statement about the Fed’s Balance Sheet tightening policy. You see, the market has been squawking with the Fed’s attempt to reduce its balance sheet from the Great Recession Quantitative Easing Program. Staring back in 2017, the Fed has been allowing a monthly capped level of this matured debt to roll off its books. The Fed’s past statement that this program was on “autopilot” has now changed to their amenability, to not only consider pausing this program, but even to one of considering a reversal of the program, i.e., a willingness to begin injecting liquidity back into the economy, if necessary.

For an update about the Fed’s economic policy in July of 2020, click here for an article by CNBC.

If you have a question about how recent market events may affect your retirement portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients.

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Fed raises rates for third time in 2018

Policymakers unanimously agreed to raise the federal funds rate a quarter point to a range of 2% to 2.25% today. The Fed also raised its expectation for growth this year from 2.8% to 3.1%, reflecting the U.S. economy’s strength. Click on the link above to read more . . .