Monthly market perspectives

Our investment and economic outlook: May 2022

April 26, 2022

Asset-class return outlooks
A table presents Vanguard’s expectations for the ranges of annualized returns, as well as median levels of volatility, for nine classes of equity securities, eights classes of fixed income securities, and the rate of U.S. inflation.   Among equities, the following two sets of projections are based on the February 28, 2022, running of our Capital Markets Model: U.S. equities, 2.8% to 4.8% returns and 16.8% volatility; and global equities excluding the United States (unhedged), 5.7% to 7.7% returns and 18.4% volatility.   The remaining seven equity classes are based on the December 31, 2021, running of our Capital Markets Model: U.S. value, 2.8% to 4.8% returns and 19% volatility; U.S. growth, –1.2% to 0.8% returns and 17.5% volatility; U.S. large-cap, 1.9% to 3.9% returns and 16.3% volatility; U.S. small-cap, 2.3% to 4.3% returns and 22.2% volatility; U.S. real estate investment trusts, 1.8% to 3.8% returns and 19.2% volatility; global ex-U.S. developed markets equities (unhedged), 5.1% to 7.1% returns and 16.3% volatility; and emerging markets equities (unhedged), 4.3% to 6.3% returns  and 26.8% volatility.   Among fixed income securities, the following five sets of projections are based on the February 28, 2022, running of our Capital Markets Model: U.S. aggregate bonds, 1.9% to 2.9% returns and 4.6% volatility; U.S. Treasury bonds, 1.6% to 2.6% returns and 4.8% volatility; U.S. credit bonds, 2.4% to 3.4% returns and 5.8% volatility; U.S. cash, 1.5% to 2.5% returns and 1.1% volatility; and global bonds ex-U.S. (hedged), 1.8% to 2.8% returns and 3.9% volatility.   The remaining three fixed income classes are based on the December 31, 2021, running of our Capital Markets Model: U.S. high-yield corporate bonds, 2.3% to 3.3% returns and 10.3% volatility; U.S. Treasury Inflation- Protected Securities, 1.2% to 2.2% returns and 4.6% volatility; and emerging markets sovereign bonds, 2.5% to 3.5% returns and 10.5% volatility.   The rate of U.S. inflation is forecast at 1.6% to 2.6%, with 2.3% volatility.
Region-by-region outlook

United States

Euro area

China

Emerging markets

Energy, food, and housing costs drive inflation higher
Inflation and wage pressures prompt Fed action
Prolonged and persistent periods of real rate increases favor some sub-asset classes
This chart shows the historical performance of 13 sub-asset classes during recent periods when real interest rates rose. High-quality value, international equities, emerging markets, value stocks, U.S. equities, and small-cap stocks tended to perform above high-quality growth, the median-returning asset class. Growth stocks, high-yield bonds, home prices, commodities, low-quality growth, and U.S. aggregate bonds all underperformed the median.
Unemployment should continue falling
Market perspectives: May 2022
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