Philadelphia Fed Survey of Professional Forecasters: Q4 vs Q1 forecasts
Source: Federal Reserve Bank of Philadelphia, as of February 12, 2021. 2020 forecasts for 10-year Treasury yield and stock returns were as of Q1 2020 while 2020 forecasts for inflation and GDP were as of Q4 2020. Stock returns refer to the S&P 500. *10-year Treasury and stock returns refer to forecasters’ average over the next 10 years.
- Investor and economic sentiment remain high amid vaccine optimism, resilient corporate earnings and Wednesday’s strong retail sales report. The prospect of additional fiscal stimulus potentially arriving this spring has added fuel to the optimistic fire.
- With this in mind, the outlook for the U.S. economy over the coming years looks notably stronger now than it did just one quarter ago, based on the results of the Philadelphia Federal Reserve’s Q1 2021 Survey of Professional Forecasters.
- Panelists in the Q1 2021 survey raised their expectations across a range of economic indicators, including GDP growth for each of the next three years, inflation for 2021 and 2022 and productivity growth, among others.1
- Amid the broad-based economic optimism, however, it is notable that the forecasters did not alter their long-term expectations for stock returns. As the chart highlights, they continue to expect the S&P 500 to generate annual average returns of 5% over the coming decade – the same as their forecast from Q1 2020.1
- Market analysts could be wrong, of course – most never anticipated that stocks would end 2020 with a 18% gain. Yet with valuations already rich and much optimism priced in by now, forward stock returns could disappoint some investors. If the forecasters outlooks are correct, a broader and perhaps more global approach to investing may be necessary to meet investors’ return expectations.