Russell Investments’ 2018 Global Market Outlook – Q3 Update: Strategists on watch as markets walk trade-war tightrope
- Quantitative models show recession risk flashing ‘caution’, not ‘warning’
- Amid market risks, the team believes global equities still have room to run in 2018
SEATTLE, June 27, 2018 — Russell Investments released its 2018 Global Market Outlook – Q3 Update today, offering economic insights and market forecasts from the firm’s global team of multi-asset investment strategists.
The team believes the two key global market trends of early 2018—U.S. growth leadership and the U.S. dollar bounce—have run their course. Looking ahead, the strategists are watching for any escalation in the trade war issue and keeping an eye on the yield curve for a U.S. recession warning. However, the team believes the latter seems unlikely before late 2019.
“Our cycle, value and sentiment decision-making process at mid-year holds us at a broadly neutral weighting on global equities,” said Andrew Pease, global head of investment strategy at Russell Investments. “We have a small preference for Europe, Japan and emerging markets over the U.S., and expect that the U.S. 10-year Treasury yield has limited upside. We see the U.S. dollar bounce as having run its course.”
Assessing the U.S. economy, the team at mid-year expects it can continue with above-trend growth through mid-2019. However, the team believes U.S. Federal Reserve (Fed) policies appear on track to invert the yield curve by the end of this year. Given the usual lags, they believe this means an elevated risk of recession by the end of 2019 and through 2020.
“There’s a rhythm to the United States economy that makes a ‘more of the same’ outlook a very reasonable assessment for the next 12 months,” said Paul Eitelman, senior investment strategist. “The challenge for investors is that we believe this rhythm is already accounted for in the price of U.S. equities.”
Regarding Europe, the firm’s strategists note economic growth has cooled, but believe it is still above trend and that corporate earnings are growing at a healthy pace. They rate the threats to global trade and Brexit as bigger dangers for Europe than other threats, such as Italian politics.
The team also remains positive on the Asia-Pacific outlook. Fears of a significant China slowdown in the strategists’ view are overdone, and they believe the rest of developing Asia has shown good resilience to the rising U.S. dollar. Japan is more mixed, with weak consumer data offsetting strong corporate indicators. However, they expect rising real wages should see the household sector recover.
Looking at currencies, the team sees the bounce in the U.S. dollar since mid-April as mostly technical and not the start of a structural dollar bull market. They also see signs that the dollar rally is running out of steam.
Considering their quantitative modeling tools, the U.S. business cycle index model estimated at mid-year points to relatively low recession risk over the next 12 months, while their model for U.S. equities versus fixed income has bounced back (relative to the end of Q1 2018) to a small pro-equities bias at mid-year 2018.
To view the report, please see the 2018 Global Market Outlook – Q3 Update.
About Russell Investments
With more than 80 years of experience, Russell Investments is a global investment manager, dedicated to helping investors reach their long-term goals. Russell Investments offers investment solutions in 31 countries, manages $298 billion in assets (as of March 31, 2018) and provides consulting services on $2.3 trillion in assets (as of Dec. 31, 2017). Russell Investments specializes in multi-asset solutions, scouring the globe to deliver the best investment strategies, managers and asset classes to its clients around the world.
Headquartered in Seattle, Washington, Russell Investments operates globally with 21 offices, providing investment services in the world’s major financial centers such as New York, London, Tokyo and Shanghai. For more information about how Russell Investments helps to improve financial security for people, visit russellinvestments.com or follow @Russell_Invest.
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