2021 Global Market Outlook: Russell Investments’ market strategists see the ‘old normal’ in 2021 outlook

Team believes vaccine prospects likely to make 2021 a year of economic recovery

SEATTLE, December 8, 2020 —  Russell Investments’ market strategists maintain a moderately positive global market outlook for 2021, thanks in large part to promising COVID-19 vaccine developments.

“While markets have priced in a fair amount of the good news on the vaccine, more gains seem possible in 2021 as corporate profits rebound and central banks remain on hold,” said Andrew Pease, global head of investment strategy at Russell Investments. “We believe that 2021 will feature an extended period of low-inflation, low-interest rate growth that favors equities over bonds.”

The team expects a return to normal by the second half of 2021 will help extend the rotation that began in early November away from technology/growth leadership towards cyclical/value stocks. Technology and growth stocks, which have enjoyed tailwinds during the COVID-19 pandemic from a boost to earnings and lower discount rates, likely will face headwinds once a vaccine is available and lockdowns have been eased. This should allow the normal early-cycle recovery dynamics to resume, with investors rotating towards relatively cheaper value and non-U.S. stocks that will benefit from the return to more normal economic activity.

In the meantime, the team’s cycle, value and sentiment investment decision-making process scores global equities as expensive (with the very expensive U.S. market offsetting better value elsewhere), sentiment as overbought and the cycle as supportive. This leaves the team slightly cautious on the near-term outlook with expensive valuations offset by the positive cycle outlook.

Looking toward 2021, the team also:

  • Prefers non-U.S. equities to U.S. equities. “The post-vaccine economic recovery should favor undervalued cyclical value stocks over expensive technology and growth stocks. Relative to the U.S., the rest of the world is overweight cyclical value stocks.,” Pease said.
  • Sees value in emerging markets equities. “China’s early exit from the lockdown and stimulus measures should benefit EM more broadly, as will the recovery in global demand and a weaker U.S. dollar.,” Pease said.
  • Sees high yield and investment grade credit as slightly expensive on a spread basis, but with an attractive post-vaccine cycle outlook. “Bank loans and U.S. dollar-denominated emerging markets debt in our view offer the best opportunities,” Pease said.
  • Views government bonds as expensive. “Low inflation and dovish central banks should limit the rise in bond yields during the recovery,” Pease said. “U.S. inflation-linked bonds offer good value with break-even inflation rates well below the Fed’s targeted rate of inflation.”
  • Believes real assets offer a pandemic recovery trade, particularly Real Estate Investment Trusts (REITs). which sold off heavily in March 2020, with investors concerned about the implications of social distancing and online shopping for office buildings and shopping malls. “Sentiment for REITs appears overly bearish, while value is positive,” Pease said. “Listed infrastructure should also benefit from the global recovery, boosting transport and energy infrastructure demand.”
  • Expects the U.S. dollar will weaken into the global economic recovery, given its counter-cyclical behavior. Since the U.S. dollar typically gains during global downturns and declines in the recovery phase, the team believes the main beneficiaries should be the economically sensitive ‘commodity’ currencies, such as the Australian, New Zealand and Canadian dollars. Meanwhile, the euro and British sterling appear undervalued at year-end, and the team believes both currencies should be boosted by the post-vaccine recovery.

For more information, the full 2021 Global Market Outlook is available here.


About Russell Investments
Russell Investments is a leading global investment firm providing tailored solutions and services to institutions and individuals through financial intermediaries. Russell Investments is dedicated to improving people’s financial security, leveraging an 84-year client-centric heritage rooted in investment innovation. Since 1985, for example, with the launch of our first tax-exempt bond fund, the firm has been helping investors grow after-tax wealth. Russell Investments is the fourth-largest adviser in the world with $297.5 billion in assets under management (as of 9/30/2020) and $2.5 trillion in assets under advisement (as of 6/30/2020) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments operates through 19 offices in major financial centers such as New York, London, Tokyo and Shanghai.

Steve Claiborne, 206-505-1858, newsroom@russellinvestments.com