Vanguard examines how tightening labor markets, low volatility, and elevated asset prices could disrupt the postcrisis investing environment in 2018. The paper argues markets may be underestimating inflation and policy risks, while forecasting lower long term returns and a greater probability of equity corrections.
Vanguard Economic And Market Outlook For 2018: Rising Risks To The Status Quo
Vanguard
Joseph Davis
Research
35 Pages
Key Takeaways
Inflation Surprise Risk: Vanguard expects the U.S. unemployment rate to fall below 4% while the Federal Reserve raises rates toward 2% by year end 2018.
Lower Return Environment: Vanguard projects global equities to deliver just 4.5% to 6.5% annualized returns over the next 10 years amid stretched valuations and muted bond yields.
Global Labor Tightness: Around 80% of major economies were already at full employment, increasing the likelihood of wage pressures and policy normalization shocks across markets.
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