Low-inflationary growth will be supported by vaccine rollout as well as monetary and fiscal stimulus
SEATTLE, April 5, 2021 — Prospects for a sustained reopening of economies globally through the second half of 2021 are promising, according to Russell Investments’ strategists, with inflation pressure or interest rates unlikely to pose significant risks to the medium-term market outlook.
“Vaccines and U.S. government stimulus have the global economy on track for a strong rebound in the second half of 2021,” said Andrew Pease, global head of investment strategy at Russell Investments. “We don’t expect inflation pressures and interest rates will rise significantly over the next 12 months. Broad-based inflation pressures are unlikely to emerge until 2023, and the first U.S. Federal Reserve funds rate hike will most likely come in late 2023 or early 2024.”
Russell Investments forecasts U.S. real gross domestic product (GDP) growth of 7% for 2021, which would be the best calendar-year outcome for the U.S. since 1984, and a similarly strong post-lockdown recovery in Europe with 5% GDP growth.
“The United States is leading the charge in terms of fiscal support and as a result is likely to be the fastest-growing developed economy in 2021,” Pease said. “Although the rest of the world can’t match the U.S. fiscal firepower, the spillover effect of U.S. stimulus is likely to boost growth in Japan, Europe, and China over the next 12 months and lift global GDP growth.”
Pease added that the reopening trade likely will favor equities over bonds, the value factor over the growth factor and non-U.S. over U.S. stocks.
Russell Investments’ cycle, value and sentiment investment decision-making process in late March has a moderately positive medium-term view on global equities. Valuations are viewed as slightly expensive with high U.S. market valuations offset by fair value in the rest of the world. Sentiment is slightly overbought, and the cycle is risk-asset supportive for the medium-term.
At the beginning of Q2 2021, Russell Investments’ market strategists:
- Prefer 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.
- Like the 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.
- See 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 appear to offer the best opportunities,” Pease said.
- View government bonds as still expensive, despite the recent selloff. “Low inflation and dovish central banks should limit the rise in bond yields during the recovery,” Pease said.
- Believe real assets offer a pandemic recovery trade, particularly Real Estate Investment Trusts (REITs), which sold off heavily in 2020. “REITs look relatively cheap and listed infrastructure, although expensive relative to REITs, should also benefit from the global recovery, boosting transport and energy infrastructure demand,” Pease said.
- Expect the U.S. dollar will weaken later in 2021 as investors unwind Fed tightening expectations. They also expect it to weaken as the global economic recovery gets underway, given the dollar typically gains during global downturns and declines in the recovery phase. They see the undervalued euro as the main beneficiary.
For more information, please see the team’s 2021 Global Market Outlook – Q2 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 85-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 fifth-largest adviser globally with $323.7 billion in assets under management (as of 12/31/2020) 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 18 additional offices in major financial centers such as New York, London, Tokyo and Shanghai.
Steve Claiborne, 206-505-1858, email@example.com