2018 Global Market Outlook

Golden Oldie Bull Market May Face the Music in 2018

U.S. equities could push higher before facing headwinds later in 2018

Three U.S. Federal Reserve rate hikes expected; Recession fears likely to rise as U.S. yield curve continues to flatten
Europe; Japan and emerging markets expected to outperform U.S.

December 06, 2017 — SEATTLE–(BUSINESS WIRE)–Russell Investments released its 2018 Global Market Outlook today, offering economic insights and market forecasts from its global team of multi-asset investment strategists.

Russell Investments strategists believe global growth momentum is likely to persist into 2018, pushing up equity markets over the first part of the year. Japan, Europe and emerging markets are likely to outperform the U.S. Similarly, the euro, Japanese yen, British pound and emerging market currencies may offer investors more potential upside in 2018 than the U.S. dollar.

“The scenario for global markets in 2018 is likely to be driven by the U.S., which still dominates and is further advanced in its cycle than other economies,” said Andrew Pease, global head of investment strategy at Russell Investments. “Second-hand growth from the global economy could drive a blow-out U.S. rally in 2018, but rising headwinds later in the year are likely to spoil this goldilocks scenario. With Europe, Japan and emerging markets performing well, we believe a globally diversified multi-asset investment strategy offers the best opportunity to find a path between euphoria and danger.”

Recession Looming for 2019?

The timing of the next U.S. recession will be a critical issue for the global economy in 2018. Further out, the strategists see the risk of a recession in 2019 if additional policy tightening by the Fed causes the yield curve to become inverted. The strategists believe the 10-year U.S. Treasury yield could rise towards its fair value before declining in the latter half of 2018 as recession fears grow.

“With the labor market at or beyond full employment, spare capacity in the economy closed, and medium-term inflation pressures gradually building, we expect the Fed will be able to raise its policy rate another 100 basis points through 2018,” said Paul Eitelman, multi-asset investment strategist for North America at Russell Investments. “If the 10-year U.S. Treasury yield rises as expected by less than this, the yield curve could invert in late-2018, providing an early warning of recession.”

The question for investors is how to make the most of late-cycle returns while preparing for the inevitable downswing

In contrast to the U.S., the eurozone is amid a mid-cycle renaissance and at the early stage of its exit from a very loose monetary policy, which the strategists believe may keep core eurozone bond rates rangebound through 2018. The strategists also expect another strong year for the Asia Pacific region, buoyed by an accommodative policy at the Bank of Japan, although re-emergent wage and price inflation may cause the Reserve Bank of Australia to raise rates twice in 2018.

“The question for investors is how to make the most of late-cycle returns while preparing for the inevitable downswing,” said Jeff Hussey, Russell Investments’ global chief investment officer. “Investors need to squeeze every basis point out of their portfolios using smart strategies, implemented in a cost-effective manner, and backed by a dynamic process that leans into opportunities and away from risks.”

For more details on this report, please see the 2018 Global Market Outlook.




About Russell Investments
Russell Investments, a global asset manager, offers multi-asset portfolios and services which include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors—using the firm’s core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures—to help each achieve their desired investment outcomes. The firm has more than $289 billion in assets under management (as of 9/30/2017).
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