Vanguard economic and market update
27 March 2020 | Markets and Economy
Vanguard's key points:
- A global recession is likely already under way, but there is potential for a quick recovery.
- The long-term outlook for equities has improved.
- The world’s central banks continue to act amid pronounced market dislocations.
- Coronavirus-related trade disruptions will likely accelerate the reorganisation of global supply chains.
The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.
The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.
OHER IMPORTANT INFORMATION
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The material contained in this document is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.
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© 2020 Vanguard Investments Switzerland GmbH. All rights reserved.