Vanguard Warns More Volatility in 2018 May Hurt Equity Returns

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  • Firm sees U.S. stock gains of 3-5%; up to 7.5% for non-U.S.
  • Manager’s outlook for markets is most guarded in a decade

Old Mutual's Crabb Expects to See Some Volatility

Vanguard Group, which manages $4.8 trillion, wants investors to take note: 2018 may not be great for your portfolio.

The firm produced its most cautious outlook in a decade on concerns of more volatility, inflation and dipping market performance next year, according to a report released Monday. Higher U.S. wages or inflation could cause investors to expect more aggressive rate normalization from the Federal Reserve, sparking more market volatility, the report said.

“While our global market outlook suggests a somewhat more challenging and volatile environment ahead, investors can continue to find potential for long-term success by lowering their return expectations,” Joseph Davis, Vanguard’s global chief economist, said in a press release.

Low interest rates, scarce inflation and relatively low volatility have helped to buoy the stock market in the years since the financial crisis. Goldman Sachs Group Inc. found in November that stocks, bonds and credit were the most expensive since 1900 by one metric, and warned the market rally would end, bringing pain to investors. 

Vanguard weakened its outlook for global stocks and bonds next year, anticipating they’ll be the most subdued in a decade. The firm sees U.S. stock returns of 3 percent to 5 percent and 5.5 percent to 7.5 percent for non-U.S. equity markets.

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