Vanguard has always provided balanced and thoughtful commentary about the economy and markets. In the last few years, they’ve done an even better job of producing it regularly and making it easy for advisors to access.
Today, I’m sharing a client-approved document that they produced that is easy-to-read and sets a great baseline for thinking about 2021. The title says it all: Approaching the Dawn.
Although I encourage you to read through the document, here are some of the high points:
First, they say that the course of the pandemic will hinge on the health of the people. They show a nice chart that includes a baseline estimate for economic growth, along with both upside and downside estimates. What I like about it is that by December of next year, they think that the economy will have gotten back to the pre-covid trend outside of the downside estimate. They are clear that the road will be bumpy, but also say that we’ll get there.
Second, Vanguard expects inflation to be tame in 2021, despite fears that the large amounts of stimulus will send prices higher. I plan on covering the same topic, but *spoiler alert* I’m not worried about much inflation anytime soon.
Third, Vanguard also expects the headline unemployment rate to fall to something around five percent by the end of this year. While that’s above the extraordinarily low pre-pandemic levels, it’s also vastly improved from the height of the crisis.
Lastly, despite all of these positive developments, they make the case that market returns might be muted. That may seem counter-intuitive, but keep in mind that the market has been expecting these positive economic developments for some time and that’s why markets have risen so dramatically since March of last year.
Interestingly, they think that US value and international stocks may fare reasonably well, which is music to my ears given what a tough time they’ve had compared to the S&P 500 over the past several years. We’ll just have to see how the year unfolds.
Here’s the link to the Vanguard article – I hope you enjoy it!