“Our investment strategy process is moving away from ‘buy-the-dips’ toward ‘sell-the-rallies,’ though we still see low single-digit returns globally for 2016,” Andrew Pease, Russell Investments’ global head of investment strategy, said in a statement upon the firm’s release Wednesday of its updated second-quarter global market outlook.
“With downside risks for equity markets outweighing potential upside scenarios, we expect to maintain a cautious outlook until business conditions improve.”
Strategists at Russell see corporate profits and GDP growth in the U.S. weakening this year, according to their updated outlook.
At the same time, they see growth as likely to be strong enough for the Federal Reserve to raise interest rates twice, pushing up the 10-year U.S. treasury yield to 2.3% over the next 12 months.
U.S. equities, they said, are now likely to hold to low single-digit returns for 2016 rather than low-to-mid- single digits projected at the beginning of the year, owing to expensive valuations and deteriorating price momentum.
“We have an underweight preference for U.S. equities in global portfolios as lackluster earnings and rich valuations suppress total-return expectations to near-zero over the next 12 months,” Russell’s investment strategist for North America Paul Eitelman said in the statement.
“While we do see more prevalent downside risks for the U.S. following the first quarter of 2016, the lack of major imbalances in the U.S. economy makes a recession this year unlikely.”
In contrast, strategists see some reasonable valuations in eurozone equities, which are being helped by quantitative easing.
Nevertheless, they said, further QE announcements were not having a big influence on either the euro or the Japanese yen. As a result, they expected the U.S. dollar bull run to wind down this year.