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Portfolio > Economy & Markets

Vanguard Sees Value Stocks Beating Growth in Next Decade

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The Vanguard Group projects U.S. stocks will grow by 4.1% to 6.1% annualized over the next 10 years, with value stocks outpacing domestic equities overall, the mutual fund giant said Thursday.

The company, releasing its market and economic forecasts based on June 30 data, also sees a 25% likelihood of a U.S. recession in the next 12 months and a 65% probability in the next 24 months.

Among U.S. stock classes, Vanguard forecasts:

  • 4.4% to 6.4% annualized nominal returns for value equites over the next decade.
  • 1.6% to 3.6% returns for growth stocks.
  • 4% to 6% for large-cap equities.
  • 4.3% to 6.3% for small-cap equities.
  • 3.9% to 5.9% for real estate investment trusts.

The firm also projects 3.1% to 4.1% annualized returns in U.S. bonds in aggregate, with high-yield corporate bonds the expected growth leaders at a projected 5.7% to 6.7%.

The projections depend on market conditions and thus could change over time, the firm noted.

As for the economy, Vanguard downgraded its U.S. growth forecast for 2022 after a second consecutive quarter of contraction.

“We believe it likely that the United States will struggle to regain above-trend growth in the quarters ahead. Vanguard now expects full-year 2022 U.S. economic growth of 0.25%–0.75%, down from the estimate last month of about 1.50%,” the firm said.

“When a recession occurs, we don’t know how long it will last or precisely when equity markets will recover, making it virtually impossible to time the markets,” according to Vanguard. “But equity prices have frequently begun to fall prior to the start of a recession and hit their low point sometime during the recession. They have typically started to recover before the end of the recession.”

The company also expects the Federal Reserve to raise its target interest rate to a range of 3.25% to 3.75% by year-end, up from the 0% to 0.25% range when the year started. The Fed in July raised the target rate by 75 basis points to a range of 2.25% to 2.50%, and said such an “unusually large” rate increase may be appropriate again in September to bring inflation under control.

Vanguard continues to expect that the Fed’s benchmark interest rate will peak at 4% next year as the central bank aims to tame inflation.


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