Russell Investments’ 2017 Global Market Outlook – Q2 Update: The “fake news” market rally may have to face reality
- Equity markets look deeply overbought with the U.S. most vulnerable
- U.S. recession risk remains low and Treasuries appear fairly valued
- One more U.S. federal funds rate hike forecast for 2017
SEATTLE, March 29, 2017 — Russell Investments today released its 2017 Global Market Outlook – Q2 Update, offering economic insights and market forecasts from its global team of multi-asset investment strategists.
Russell Investments’ strategists warn that investor expectations have run ahead of market fundamentals in the global equity markets. They maintain a call for caution as inflated expectations for global growth and U.S. fiscal policy drive markets higher, despite looming global economic headwinds, including additional Federal Reserve (Fed) tightening and a slowing Chinese economy. On the positive side, opportunities remain for agile multi-asset investors, as the strategists see little risk of a recession in the U.S., attractive growth in Europe and resilience in emerging markets. The strongest tailwinds for global equities in the team’s view are in Europe, followed by Japan.
“While market bulls see reflation and investor confidence, we see very expensive U.S. equities, high profit margins and an economy unlikely to sustain the current surge,” said Andrew Pease, global head of investment strategy at Russell Investments. “A pull-back seems likely and should create a buying opportunity, which means we are maintaining our ‘buy the dips, sell the rallies’ investment strategy.”
U.S. growth expectations remain mediocre, leading the team to maintain its forecast for a total of two interest rate hikes in 2017, despite the Fed’s more confident stance to start 2017. Although a more hawkish Fed creates headwinds for U.S. Treasuries, the team believes the market is already pricing-in three hikes for the year. According to the strategists, this means most of the damage to U.S. Treasuries is in the rear-view mirror and they are less negative on bonds than in prior quarters.
“Knowing when market exuberance will meet reality is more art than science, but our investment strategy building blocks of business cycle, valuation and sentiment clearly indicate downside risks for U.S. equities,” said Paul Eitelman, multi-asset investment strategist for North America at Russell Investments. “Expensive valuations and overbought sentiment signals drive our caution. Globally diversified, multi-asset portfolios may look to the positive cyclical outlook in European equities and the value in emerging markets. In addition, 10-year U.S. Treasury yields are close to our estimate of fair value at 2.5%.”
For more information on the annual report, which also includes the strategists’ latest views on Europe, Asia-Pacific and currencies, please see the 2017 Global Market Outlook – Q2 Update.
About Russell Investments
Russell Investments, a global asset manager, offers multi-asset portfolios and services which include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors—using the firm’s core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures—to help each achieve their desired investment outcomes. The firm has more than $258 billion in assets under management, with $123.7 billion in multi-asset solutions (as of 12/31/2016).
Headquartered in Seattle, Washington, Russell Investments operates globally with 21 offices, providing investment services in the world’s major financial centers such as London, Paris, Amsterdam, Sydney, Tokyo, Shanghai, Toronto and New York. For more information about how Russell Investments helps to improve financial security for people, visit russellinvestments.com follow @Russell_Invest.