2017 Global Market Outlook Q4 Update: Momentum Vs. Asymmetry

Russell Investments profile picture
Russell Investments

It's time for the final installment of our 2017 global market outlook: our forecast for the fourth quarter of the year. At this juncture, we find that developed economies are in the "sweet-spot" of moderately above-trend growth, continuing low inflation and easy monetary policy (or in the case of the U.S. Federal Reserve, very gradual tightening). Since our mid-year update, equity markets have drifted higher, corporate credit and real assets have gained and government bonds have rallied. As a result, we see the global market as offering a supportive environment for just about every part of a portfolio.

Global equities: Cycle, value and sentiment

Two words that keep recurring in our strategist team discussions are momentum and asymmetry. A benign economic environment can see markets trend higher. We capture this in the sentiment part of our cycle, value and sentiment (CVS) investment decision-making process.

Starting first with global equities, our cycle scores are mostly neutral to slightly positive. We view Europe, Japan and emerging markets as positive, but remain neutral on the U.S., due to the current momentum-driven rally. Overall, we're sticking to our "buy the dips and sell the rallies" credo-a belief we've held about the market environment since the start of the year.

It's the value part of our CVS process that creates asymmetry concerns. Specifically, when considering U.S. equities, the elevated level of the cyclically adjusted price earnings ratio (CAPE) makes us nervous about asymmetry - that the downside for S&P 500® Index returns is larger than the upside. Thanks to Professor Robert Shiller, we have a history of the S&P 500 CAPE back to 1880. It currently stands at just over 30-times trend earnings, a level reached only twice before; during the tech bubble of the late 1990s and in the 1929 market boom.

A high

This article was written by

Russell Investments profile picture
Russell Investments is a leading global investment solutions firm with $326.9 billion in assets under management (as of 3/31/2021) and $2.8 trillion in assets under advisement (as of 12/31/2020) for clients in 32 countries, The firm provides a wide range of investment capabilities to institutional investors, financial intermediaries, and individual investors around the world. Building on an 85-year legacy of continuous innovation to deliver exceptional value to clients, Russell Investments works every day to improve people’s financial security. Headquartered in Seattle, Washington, Russell Investments has offices in 19 cities around the world, including in New York, London, Tokyo, and Shanghai.  Russell Investments’ ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners, Russell Investments' management and Hamilton Lane Incorporated.Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.