Vanguard warns: Stocks 'frothy', bonds 'muted', risk-return 'below average'

Vanguard Group, the $2 trillion-plus investment fund giant based in Malvern, projects the economy will grow slightly faster this year -- "approaching 3%," best since before the financial crisis six years ago -- inflation remains low, interest rates are rising only slowly -- but high world unemployment, relentless debt, and "extremely aggressive monetary policies" by the Federal Reserve and other central banks make a repeat of last year's outsize market returns unlikely:

- Stock market prospects are "more guarded" this year. U.S. price-earnings ratios are too high, some foreign markets are "frothy," projected 6%-9% returns are "below historical average."
- Bond returns may rise toward 3%, up from the recent 2% peak, but profit outlook remains "muted".
- Mixed stock-bond allocations will yield "less compensation for... additional risk than a few years ago," with 60/40 stock/bond portfolios yielding maybe 3%-5% after inflation.

See Vanguard's 32-page report here.  See also Huntingdon Valley-based investor Robert Costello's pungent, pithy stocks warning along similar lines here.