Market Week in Review

Health Check: How Is The Global Economy Holding Up? | Russell Investments

2025-01-10

Paul Eitelman, CFA

Paul Eitelman, CFA

Global Chief Investment Strategist




Economic insights Market insights
hi and welcome to the market weekend review for the weekending January 10th 2025 I'm Paul edman Chief investment strategist for North America at Russell Investments and there's three things I wanted to talk about this week uh first some of the political developments we're seeing globally second uh key economic developments out of the United States and then finally um some pretty significant volatility that we're seeing in fixed income markets that have that's having global ramification so if we start first with um the political cycle particularly in Canada there was a notable development this week where uh Justin Trudeau uh announced his resignation ahead of um the Canadian elections that were upcoming in October of this year so that was certainly a notable development from our friends up north here um and I think on that regard there's a really nice post from my uh friend and colleague ban Lynn this week on LinkedIn that kind of walks through uh the developments out of Canada but also had a really nice reminder around the importance of um sticking to the plan around times like this flagging similar turmoil in Canada in the early 90s uh where Equity markets from a Canadian perspective actually grinded higher through the period I thought that was an interesting piece uh for those that are interested in what happened in Canada this week um second around uh the US economy we had a couple of really important data points this week we're not seeing a lot of layoffs still which is really important for both uh the resilience of the US consumer and uh the economy more broadly um and then second from an economic perspective we got the purchasing manager indices globally for the month of December that's usually the first activity read we have on the health of the global cycle and I think the numbers there continue to look pretty encouraging uh indicative of a global economy that's continuing to chug along here um with important differentiation under the surface growth's being led um by the Services sector and being led by uh the United States which has really been at the Forefront of the global business cycle for the better part of the last one to two years finally um from a financial Market perspective I think a lot of the focus uh this week has been around the significant volatility that we're seeing in fixed income markets which is starting to pressure other asset classes globally um the US 10year Treasury yield for example Rose to 4. 7% uh this week it was higher on the week it's been higher through the holiday period and we're now sitting a full percentage point above uh where treasury yields were at their recent lows in mid uh September so it's definitely a notable move but we're also seeing action in global fixed income markets particularly in the United Kingdom where guilt yields for the tenure have also moved up to similar levels uh now sitting at around 4. 8% that's actually above uh where they got to uh during uh the pension crisis in 201 22 around um concerns over the fiscal plans for the United Kingdom that caused a riot in fixed income markets I think there as well there's been a really nice uh report from our fiduciary management colleagues in the United Kingdom walking through how they're seeing increasing resilience in uh the pension schemes of the UK now uh as contrast to where they were a couple of years ago that's a good resource um as I mentioned higher yields are pressure ing other asset classes as well we've started to see some selling pressure onto Equity markets this week the S&P 500 is trading down about 3% off of its peak uh from uh December of 2024 and more rate sensitive areas of the market like small cap have been hit harder uh with the Russell 2000 Index for example trading off uh more like 8% from its postelection highs and unwinding a lot of the optimism that we're seeing immed mediately after Trump's Victory and the Red Wave outcome uh from November our view is um on the back of these significant moves in fixed income we're starting to see incremental value again in uh the bond market after trimming some of our uh portfolio strategies as it relates to duration uh last September um as well we're seeing the yield curve having steepened pretty markedly here so the 10-year treasury yield for example has been moving up more than the two-year treasury yield that's been an area area where we had seen opportunity uh to benefit from a steepening of the yield curve but with the significant moves over the last several weeks that spread uh that yield curve slope is now approaching levels that we think is closer to our estimates of uh fair value so that's really been uh the key for us that we're going to continue to keep an eye on uh in the weeks ahead so thanks for watching and uh stay tuned for next time thanks hi I'm Sophie antto head of portfolio and business cons ing at Russell Investments if you liked what you just saw and heard consider subscribing to our YouTube channel or check us out on LinkedIn thanks for tuning in

Executive summary:

  • Canadian equity markets took the resignation of Prime Minister Justin Trudeau in stride 
  • Global economic growth, led by the U.S., is continuing
  • The selloff in UK government bonds deepened during the first week of January

On the inaugural edition of Market Week in Review for 2025, Senior Director and Chief Investment Strategist for North America, Paul Eitelman, discussed Canadian Prime Minister Justin Trudeau’s resignation as well as the latest batch of U.S. and global economic data. He also examined the recent volatility in global fixed income markets and its impact on other asset classes.

Trudeau announces resignation. How did Canadian equity markets react?

Eitelman began with a look at the latest political developments in Canada, where Prime Minister Justin Trudeau announced on Jan. 6 that he will resign once a new Liberal Party leader is chosen. Trudeau made the announcement ahead of Canada’s national elections, which must occur by October, he remarked.

Canadian equity markets have been largely unfazed by Trudeau’s announcement so far, Eitelman said, stressing that uncertainty doesn’t always translate to adverse market outcomes. For example, in 1993, Canada’s S&P/TSX Composite Index climbed roughly 15% during the four-month period between Prime Minister Brian Mulroney’s resignation announcement and the beginning of Kim Campbell’s tenure as prime minister, he noted.

“This precedent serves as an important reminder of the value of sticking to your strategic asset allocation during times of uncertainty,” Eitelman said, pointing viewers to a recent LinkedIn post from his colleague, Investment Strategist BeiChen Lin, for additional information.

U.S. services sector powers global economic growth

Next, Eitelman turned to the latest U.S. economic data, which he said suggests that the country’s labor market is holding up. He explained that while it’s becoming harder for some unemployed individuals to find jobs, layoffs have not been increasing. “This is an encouraging sign for the resilience of the U.S. consumer and the economy more broadly,” he noted.

Shifting his gaze more globally, Eitelman said that the global PMI (purchasing managers’ index) readings for the month of December paint a fairly encouraging picture for the health of the economy. “Broadly speaking, these numbers point to a global economy that is continuing to chug along—with a few important differentiations under the surface,” he remarked. Specifically, global growth is being powered by the services sector and led by the U.S., Eitelman explained, noting this has been the case for the better part of the past few years.

Volatility strikes global bond markets

Eitelman wrapped up the episode by unpacking the recent volatility in fixed income markets around the globe. A notable selloff in government bonds has occurred over the past weeks, he said, noting that the yield on the U.S.10-year Treasury note settled near 4.7% on Jan. 8—a full percentage-point higher than where it stood in mid-September.

Meanwhile, in the UK, the yield on the 10-year gilt rose to around 4.8% the same day—higher than it reached during the gilt market crisis of 2022, Eitelman noted. However, he stressed that UK pension schemes are much more resilient to rising yields today than a few years ago, noting that most are well-positioned to weather the changes.

Eitelman said that the global rise in yields is beginning to impact other asset classes as well, noting that the S&P 500® Index is down roughly 3% from its December 2024 peak. More rate-sensitive areas of the market have been hit harder, he noted. Case-in-point: the Russell 2000® Index is off roughly 8% from its post-U.S. election high, unwinding much of the optimism seen in small caps following President-elect Donald Trump’s victory in November and the red wave outcome.

So, how does the selloff in fixed income markets impact Russell Investments’ views? Eitelman said that the strategist team is starting to see incremental value in the bond market again. He noted that the U.S. Treasury yield curve has also steepened markedly, with the yield on the 10-year note rising faster than the yield on the 2-year note.

“This was an area where we’d seen some potential opportunities, but with the significant moves over the last several weeks, the spread between the two is now approaching a level that we think is closer to our estimate of fair value,” Eitelman stated, emphasizing that the slope of the curve will be an important watchpoint in the weeks ahead.

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