As the first half of 2019 draws to a close, mounting uncertainty over the China-U.S. trade war continues to fuel investor fears and engender broad-based risk-off sentiment. Business confidence is low, capital spending is negative, and global manufacturing is weak. All of these indicators, coupled with decelerating profit growth and the inversion of the U.S. Treasury yield curve—which means that long-term Treasury yields are falling below short-term Treasury yields—point to the need for caution at this stage. At Russell Investments, we believe it is critical to set aside the noise and focus on market fundamentals: business cycles, security valuations, and investor sentiment (CVS).

This paper discusses what we’re doing to manage our clients’ portfolios using our CVS framework by answering the following questions:

  • Where in the business cycle is the economy
  • How expensive is a security’s valuation relative to other regions?
  • What are the strongest gauges of market sentiment?

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