Expensive U.S. equities vulnerable to a pull-back; Treasuries remain expensive across regions
July 5, 2017 –SEATTLE–(BUSINESS WIRE)–Russell Investments released its 2017 Global Market Outlook – Q3 Update today, offering economic insights and market forecasts from its global team of multi-asset investment strategists.
Russell Investments strategists advise caution in mid-2017’s late-cycle, momentum-driven market. The team believes investors in the U.S. market have embraced a type of cognitive dissonance: equity valuations are sky-high, but low treasury yields warn of lackluster growth. Their analysis of current market conditions has them leaning out of the U.S. rally and buying the next dip or potentially better opportunities outside the U.S. market.
They see the strongest tailwinds for equity returns in Europe, followed by emerging markets and Japan. The team also views government bonds as expensive across markets, especially in Germany and the UK, indicating in their view that yields will likely trend upward in the medium term after remaining in a range for the next few months.
Bond are from Mars, Equities from Venus
“U.S. bond investors currently seem to be from Mars while equity investors are from Venus,” said Andrew Pease, global head of investment strategy at Russell Investments. “In this late-cycle market with contradictory views on the U.S. economy, we’d lean toward Europe in a globally diversified, multi-asset portfolio for potentially better opportunities to help find returns and manage risk.”
Pease added that he believes the cautious outlook for U.S. growth combined with the recent slowdown in core inflation will likely prevent a Fed funds rate hike for the rest of 2017, though it likely will begin winding down its balance sheet later this year. The strategists continue to look for 10-year U.S. Treasury yields to slowly shift up to 2.5% over the next 12 months.
“The U.S. economy is resilient and recession risks appear to be contained, however, the outlook for growth remains mediocre,” said Paul Eitelman, multi-asset investment strategist for North America at Russell Investments. “We continue to have an underweight preference for U.S. equities in global, multi-asset portfolios, primarily due to their expensive valuations.”
For more information on the annual report, which also includes the strategists’ latest views on Europe, Asia-Pacific and currencies, please see the 2017 Global Market Outlook – Q3 Update.
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 $266 billion in assets under management, with $123.7 billion in multi-asset solutions (as of 3/31/2017).
Headquartered in Seattle, Washington, Russell Investments operates globally with 21 offices, providing investment services in the world’s major financial centers such as London, Paris, Amsterdam, Sydney, Tokyo, Shanghai, Toronto and New York. For more information about how Russell Investments helps to improve financial security for people, visit russellinvestments.com or follow @Russell_Invest.