2017 Global Market Outlook — Q4 Update
Russell Investments' global team of investment strategists describes a combination of economic growth, low inflation and easy monetary policy in developed economies that is currently supporting a range of asset classes, including equities, corporate credit, real assets and government bonds. This market environment is asymmetrical, however, as the downside potential outweighs the upside, especially in U.S. equities, where the cyclically-adjusted price-to-earnings ratio (CAPE)* of the S&P 500® Index hovers at its most expensive level ever outside of 1929 and the late 1990s.
The team remains underweight U.S. equities, preferring Europe, Japan and emerging markets within global equities. They also see government bonds as expensive across regions and expect global yields to trend upward over the next year.
Key global market outlook highlights include:
- Expensive U.S. equities remain a key concern
- Conditions for government bonds favor rising yields
- U.S. Federal Reserve expected to resume Fed funds rate hikes in 2018
- Potential for overtightening of financial conditions in Canada
- Robust growth in Europe neutralized by a rising euro exchange rate
- Slightly expensive valuations in the Asia-Pacific equity market
- Low probability of U.S. recession over the next year
Russell Investments releases its Global Market Outlook on a quarterly basis. The Outlook highlights the most recent economic insights and market expectations from the firm's global team of investment strategists. It is the most widely read of Russell Investments' publications.
SENIOR INVESTMENT STRATEGIST, EMEA
INVESTMENT STRATEGY ANALYST
Stephen Wood, Ph.D.
CHIEF MARKET STRATEGIST
* An alternative to the more traditional P/E Ratio, the CAPE averages the earnings over the previous 10 years in order to minimize the impact of swings in earnings from year to year.