Markets

10-Year Annualized Forecasts for Major Asset Classes

Published

1 month ago

June 14, 2023

Marcus Lu

10-year annualized forecasts for major asset classes

10-Year Annualized Forecasts for Major Asset Classes

While there’s no way of predicting the future, quantitative models can help us come up with a general idea of how different asset classes may perform in the future.

One example is Vanguard’s Capital Markets Model (VCMM), which has produced a set of 10-year annualized return forecasts for both equity and fixed income markets.

Visualized above, these projections were published on May 17, 2023, and are based on the March 31, 2023 running of the VCMM.

Equity Returns

The equity forecasts from this infographic are listed in the following table.

Asset Class	Return Forecast (lower)	Return Forecast (upper)	Median Volatility
U.S. Equities	4.1%	6.1%	17.0%
U.S. Value	4.4%	6.4%	19.6%
U.S. Growth	1.4%	3.4%	18.2%
U.S. Large-Cap	4.1%	6.1%	16.7%
U.S. Small-Cap	4.4%	6.4%	22.3%
U.S. Real Estate Investment Trusts	4.4%	6.4%	20.1%
Global Equities ex-U.S. (unhedged)	6.4%	8.4%	18.2%
Global ex-U.S. Developed Markets Equities (unhedged)	6.1%	8.1%	16.6%
Emerging Markets Equities (unhedged)	6.1%	8.1%	25.9%

A key takeaway here is that Vanguard expects international equities to outperform U.S. equities over the next decade.

We believe that the valuation-based expansion in U.S. equities is sowing the seeds for lower returns in the decade.

A valuation-based expansion refers to the increase in a company’s market value, rather than its intrinsic value. In other words, Vanguard doesn’t believe that current U.S. equity valuations are justified, and that this will dampen performance over the next decade.

Cited reasons for international outperformance include more favorable valuations, higher dividend payout ratios, and a potentially weaker U.S. dollar.

Fixed Income Returns

Now turning to fixed income, here are the forecasts used in this infographic.

Asset Class	Return Forecast (lower)	Return Forecast (upper)	Median Volatility
U.S. Aggregate Bonds	3.6%	4.6%	5.5%
U.S. Treasury Bonds	3.3%	4.3%	5.7%
U.S. Intermediate Credit Bonds	4.2%	5.2%	5.2%
U.S. High-Yield Corporate Bonds	5.5%	6.5%	10.1%
U.S. Treasury Inflation-Protected Securities	2.7%	3.7%	5.0%
U.S. Cash	3.4%	4.4%	1.4%
Global Bonds ex-U.S. (hedged)	3.6%	4.6%	4.4%
Emerging Markets Sovereign Bonds	5.6%	6.6%	10.9%
U.S. Inflation	2.0%	3.0%	2.3%

Several bond indexes saw record-breaking declines in 2022 thanks to the unprecedented speed of interest rate hikes. Despite this turmoil, Vanguard believes that investors with a longer horizon will actually be better off as a result. The reasoning here is that cash flows can now be reinvested at much higher rates, which over time should offset any declines in an investor’s bond portfolio.

Vanguard also expects U.S. inflation to be contained over the next decade. The firm has confidence in the ability of central banks to keep inflation at their target rates (2% in most developed economies).

Related Topics:volatility equity equities stocks bonds personal finance returns forecasts fixed income investing shares

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Stocks

The 50 Best One-Year Returns on the S&P 500 (1980-2022)

The highest one-year return among the top S&P 500 stocks from 1980 to 2022 was a staggering 2,620%. Which stocks top the ranks?

Published

1 week ago

July 11, 2023

Jenna Ross

The Top S&P 500 Stocks by Annual Returns

The average annual return of the S&P 500 was 10% from 1980-2022, excluding dividends. Of course, there are some companies that deliver much higher returns in any given year.

In this graphic using data from S&P Dow Jones Indices, we explore the top S&P 500 stocks with the best single year returns over the last four decades.

Ranking the Top S&P 500 Stocks

In order to find the top gainers, S&P took the top 10 best-performing stocks each year and then narrowed that list down to the top 50 overall. They ranked the top S&P 500 stocks by price returns, meaning that no dividends or stock distributions were included.

The best gains were clustered in a few select years, including the 1999 dot-com boom, the 2003 stock market rally, and the 2009 recovery from the Global Financial Crisis. None of the biggest gains happened in 2021 or 2022.

Rank	Company	Sector	Return	Year
1	Qualcomm	Information Technology	2620%	1999
2	Tesla	Consumer Discretionary	743%	2020
3	DSC Communications	Communication Services	468%	1992
4	Coleco Industries	Consumer Discretionary	435%	1982
5	Avaya	Information Technology	428%	2003
6	Chrysler	Consumer Discretionary	426%	1982
7	XL Capital (Axa XL)	Financials	395%	2009
8	Tenet Healthcare	Healthcare	369%	2009
9	Dynegy	Utilities	361%	2000
10	Advanced Micro Devices	Information Technology	348%	2009
11	Sprint	Communication Services	343%	1999
12	Ford	Consumer Discretionary	337%	2009
13	NEXTEL Communications	Communication Services	336%	1999
14	LSI Logic	Information Technology	319%	1999
15	NVIDIA	Information Technology	308%	2001
16	Nortel Networks	Communication Services	304%	1999
17	Etsy	Consumer Discretionary	302%	2020
18	Genworth Financial	Financials	301%	2009
19	Micron Technology	Information Technology	300%	2009
20	NetFlix	Communication Services	298%	2013
21	Oracle	Information Technology	290%	1999
22	Western Digital	Information Technology	286%	2009
23	Network Appliance (NetApp)	Information Technology	270%	1999
24	Data General	Information Technology	267%	1991
25	Yahoo	Communication Services	265%	1999
26	Williams Companies	Energy	264%	2003
27	Novell	Information Technology	264%	1991
28	Dynegy	Utilities	263%	2003
29	Sun Microsystems	Information Technology	262%	1999
30	PMC-Sierra	Information Technology	262%	2003
31	Advanced Micro Devices	Information Technology	259%	1991
32	Dell	Information Technology	248%	1998
33	Global Marine	Energy	247%	1980
34	Micron Technology	Information Technology	243%	2013
35	Best Buy	Consumer Discretionary	237%	2013
36	Reebok	Consumer Discretionary	234%	2000
37	Freeport-McMoRan	Materials	229%	2009
38	Biomet (Zimmer Biomet)	Healthcare	226%	1991
39	NVIDIA	Information Technology	224%	2016
40	Gap	Consumer Discretionary	223%	1991
41	NetFlix	Communication Services	219%	2010
42	Fleetwood Enterprises (Fleetwood RV)	Consumer Discretionary	217%	1982
43	National Semiconductor	Information Technology	217%	1999
44	Dell	Information Technology	216%	1997
45	Tandy Corp (RadioShack)	Information Technology	216%	1980
46	Novell	Information Technology	215%	2003
47	Corning	Information Technology	215%	2003
48	CB Richard Ellis (CBRE)	Real Estate	214%	2009
49	AES Corp	Utilities	213%	2003
50	Expedia	Consumer Discretionary	212%	2009

Qualcomm was by far the top-performer in any one calendar year window. The company had key patents for Code Division Multiple Access (CDMA) technology, which enabled fast wireless internet access and became the basis for 3G networks.

Its stock took off in 1999 as it shed less profitable business lines, resolved a patent dispute with competitor Ericsson, and joined the S&P 500 Index. At the time, CNN reported that one lucky investor who heard about Qualcomm from an investment-banker-turned-rabbi earned $17 million—roughly $30 million in today’s dollars.

The most recent stocks to make the rankings were both from 2020: well-known Tesla (#2) and lesser-known online marketplace Etsy (#17), which saw sales from independent creators surge during the early COVID-19 pandemic. The dollar value of items sold on Etsy more than doubled from $5.3 billion in 2019 to $10.3 billion in 2020, with mask sales accounting for 7% of the total.

Biggest Gainers in Each Sector

While information technology stocks made up nearly half of the list, there is representation from nine of the 11 S&P 500 sectors. No companies from the Industrials or Consumer Staples sectors made it into the ranks of the top S&P 500 stocks by annual returns.

Below, we show the stock with the best annual return for each sector.

Bubbles sized by annual return show the top S&P 500 stocks by annual gain for each stock market sector. Tesla is the top Consumer Discretionary stock with an annual return of 743% in 2020.

Tesla was the top-performing Consumer Discretionary stock on the list. After meeting the requirement of four consecutive quarters of positive earnings, it joined the S&P 500 Index on December 21, 2020. The company’s performance was boosted by the announcement that it would be included in the S&P 500, along with strong performance in China, and general EV buzz as environmental regulations tightened worldwide.

In the realm of Communication Services, DSC Communications saw a sizable return in 1992. The telecommunications equipment company had contracts with major companies such as Bell and Motorola. Alcatel-Lucent (then Alcatel), a French producer of mobile phones, purchased DSC Communications in 1998.

Serial Success Stories

It’s impressive to make the list of the top S&P 500 stocks by calendar returns once, but there are seven companies that have done it twice.

Some stocks saw their repeated outperformance close together, with Dell making the ranks back-to-back in 1997 and 1998.

Stocks that have appeared on the list of the top S&P 500 annual gains more than once, organized on a timeline with bubbles sized by the return amount. Dell made the list back to back in 1997 and 1998.

On the other hand, a select few have more staying power. Computing giant NVIDIA topped the charts in 2001 and triumphed again 15 years later in 2016. And this year might be another win, as the company has recently reached a $1 trillion market capitalization and has the highest year-to-date return in the S&P 500 as of July 6, 2023.