International Market Outlook from Russell Investments: Strategists See

The strategists at Russell Investments predict that U.S. core inflation has likely peaked and that markets will stabilise and perhaps rebound throughout the second half of 2022 as recession worries and central-bank tightening drive market volatility.

Early in 2022, it was uncertain how much inflation would rise, how forcefully central banks would react, and if Russia would invade Ukraine on a large scale. According to Andrew Pease, global head of investment strategy at Russell Investments, core inflation appears to have peaked in the United States about mid-year. Markets are pricing very aggressive tightening pathways for most central banks. Markets at least now fully comprehend these problems.

By using a variety of technical, positional, and survey indicators, Russell Investments' composite sentiment index, which gauges investor sentiment for the S&P 500® Index, reads as significantly oversold at this point in the year. This gives the strategists some comfort in the knowledge that markets have already taken the negative news into account and may recover if inflation and growth turn out to be less of a concern than markets presently anticipate.

According to Pease, the primary source of uncertainty for the future of the world is the U.S. economy. He contends that there is a chance of a recession by the second half of 2023 given the rate and scope of U.S. Federal Reserve (Fed) tightening. He anticipates either a slowdown or a mild recession as the two most likely outcomes, however a severe recession might lead to a wider equities bear market.

The biggest threat to Europe's future rests in Russia's potential decision to stop supplying the continent with gas in reaction to the EU's ban on its oil exports. Europe would almost surely enter a recession as a result of retaliation and a significant increase in gas costs due to the continent's huge reliance on Russian gas, according to Pease.

Midway through 2022, the cycle, value, and sentiment investing decision-making process at Russell Investments issues a warning against adopting a negative outlook. Sentiment has reached levels last seen in the COVID-19 market panic of March 2020 and is considered to be very oversold. U.S. Treasury bonds are rated as being inexpensive by the firm's valuation methodology, while stock values are more difficult to benchmark because of the uncertainty surrounding the mean reversion of price-to-earnings (PE) multiples and profit margins at the moment.

After the increase in rates, the value of government bonds has increased. The team believes that while Japanese, German, and British bonds are still reasonably priced, U.S. bonds currently provide a solid value. "Markets have completely priced hawkish outlooks for most central banks, and this should restrict the scope of any subsequent sell-off, which is favourable for government bonds," Pease added.

The agency's strategists offer the following summary of their mid-year asset-class preferences:

Due to their relative affordability and potential to profit from a weakening of the US dollar should the Fed become less hawkish, non-US developing stocks are more popular than U.S. equities.

If China implements significant stimulus measures, the Fed eases the pace of tightening, electricity prices decline, and the U.S. dollar declines, rising market equities may recover. Right now, it's best to take an unbiased approach.

Spreads over their long-term norms are starting to make excessive yield and financing grade credit score more valuable. Spreads will continue to be under pressure if the likelihood of a U.S. recession increases and the conflict between Russia and Ukraine intensifies.

Following the increase in rates, the value of government bonds has increased. While Japanese, German, and U.K. bonds are still somewhat expensive in the eyes of the workers, U.S. bonds now provide good value.

Real estate: Global Listed Infrastructure (GLI), which benefitted from energy exposure, has been one of the better-performing asset classes so far this year, while Real Property Funding Trusts have lost more than 20% of their value. If the conflict between Russia and Ukraine ends and inflation concerns continue, both should benefit, albeit GLI should reiterate some of the advantages of the electricity infrastructure.

The U.S. dollar has done well this year because to Fed hawkishness and safe-haven demand during the conflict between Russia and Ukraine. The team expects that it should weaken if hostilities end and if later-year inflation results lead to less Fed tightening than markets now anticipate. The euro, which has become more undervalued, and the Japanese yen, which has depreciated due to inflationary pressures on commodity prices and China's economic growth, are likely to reap the greatest benefits.

About Russell

A prominent provider of global investment solutions, Russell Investments offers institutional clients, financial intermediaries, and individual investors all around the world a broad variety of investing possibilities. Russell Investments continuously innovates to provide customers with excellent value, building on an 86-year tradition of doing so. Every day, Russell Investments strives to increase its clients' financial stability. As of March 31, 2021, the company was managing $326.3 billion for clients across 32 nations. Russell Investments has offices in 19 locations worldwide, including New York, London, Toronto, Tokyo, and Shanghai. The company is headquartered in Seattle, Washington.

This Article is written by Lombard Holdings and Team. Lombard Holdings operates as a boutique investment house; this means that the only things that influence how the company is run are the knowledge and experience of the team and you, the investor.

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Created on Jul 1st 2022 11:52. Viewed 177 times.

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