Russell Investments strategists shift outlook to neutral amid ‘The Great Reopening’ of global markets

Strategists see five longer-term implications of pandemic’s impact on markets

SEATTLE, June 24, 2020 — Russell Investments has released its mid-year 2020 global market outlook, offering insights from the firm’s investment strategists as economies reopen from coronavirus-imposed lockdowns and markets watch for a possible second wave of infections.

Following the second-quarter market rebound, the team no longer believes valuations are compelling for global equities or credit. While the business-cycle outlook has improved amid vast fiscal and monetary stimulus and economic re-openings, sentiment is no longer seen as supportive and the team’s composite indicator is displaying a neutral signal. This means the support from oversold conditions is waning and markets are at greater risk of pulling back on negative news.

“The market rebound has been helped by oversold investor sentiment, but with sentiment back to neutral, so too is our market outlook,” said Andrew Pease, global head of investment strategy at Russell Investments. “We have a broadly neutral weighting on global equities, while over the medium-term we expect the supportive cycle outlook should allow equities to outperform bonds.”

Pease added that the U.S. fiscal stimulus packages passed since March provide the nation’s economy with its most significant fiscal thrust since World War II. With the potential for more stimulus on the way, the team is positive on the U.S. economic outlook. The team believes the recovery from the recession will lead to a long period of low-inflationary growth, supported by monetary and fiscal stimulus.

While geopolitical risks are rising between the U.S. and China, the team doesn’t believe the increased rhetoric will lead to a dissolution of the phase one trade deal signed earlier this year. Regarding China, the strategists expect the Chinese economy is well-positioned for a strong rebound through the second half of 2020 and into 2021 as stimulus kicks in and the global economy recovers.

Longer-term COVID-19 implications on markets

Russell Investments’ strategists believe the pandemic has generated the following five longer-term implications for markets, which the team believes will favor domestic stocks over those exposed to global revenues and supply chains.

  • Low interest rates for longer
  • Less globalization
  • More government debt and a bigger share of government in the economy
  • Higher inflation, eventually
  • Pressure on profit margins

As a result, Pease expects mid- and small-cap stocks to perform better than large-cap stocks, in a reversal of the trend of the last decade. In addition, the team believes developed markets should benefit relative to emerging markets as there will be less technology transfer and less export-led growth.

“The unwinding of globalization is a headwind for emerging markets, “ Pease said. “Ongoing low interest rates favor higher yielding assets such as stocks, property and infrastructure over government bonds and cash.”

Asset-class views at mid-year 2020

Equities: The team prefers non-U.S. equities over U.S. equities. This is partly driven by expensive relative valuations, but it also is reflective of the likelihood that the second stage of the post-coronavirus recovery will see corporate profits improve. This should favor cyclical and value stocks over defensive and growth stocks—and the rest of the world is overweight these stocks, relative to the U.S. The team also likes the value in emerging markets (EM) equities. They believe China’s early exit from the lockdown, coupled with additional stimulus measures, should benefit EM more broadly.

Fixed income: The team sees government bonds as universally expensive. They believe low inflation and dovish central banks should limit the rise in bond yields during the recovery from lockdowns. The team has a neutral view on high-yield and investment-grade credit.

Currencies: Since the U.S. dollar typically gains during global downturns and declines in the recovery phase, the team expects the main beneficiaries during the recovery will be the economically sensitive commodity currencies—the Australian dollar, New Zealand dollar and Canadian dollar. They also see the euro and British sterling as undervalued at mid-year 2020.

Please visit to read the complete 2020 Global Market Outlook – Q3 update.

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 83-year client-centric heritage rooted in investment innovation. The firm is the fourth-largest adviser in the world with $270.1 billion in assets under management (as of 3/30/2020) and $2.5 trillion in assets under advisement (as of12/31/2019) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments operates through 21 additional offices in major financial centers such as New York, London, Tokyo and Shanghai.

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