Russell says that it is still looking for buying opportunities during dips and selling opportunities during rallies. Thus far, the volatility from Brexit has not created attractive-enough buying opportunities for Russell’s process.
“Even after the post-Brexit vote volatility, the U.S. market is not far from near-record highs, and long-term yields have trended lower,” writes Russell. “The mix of equity market optimism and bond market pessimism looks unsustainable, and our investment strategy process is warning us to be cautious.”
Russell has downgraded its business cycle outlook in Europe as well. The European economy is improving, and British and European businesses should get a tailwind from the currency declines. But the continued uncertainty caused by the Brexit will likely mean continued volatility.
In Asia, Japan’s “safe haven” status will put upward pressure on the yen and downward pressure on the business cycle outlook, but improving valuations will offset these trends, said Russell.
Russell remains cautious about emerging markets, which face two opposing trends: a stronger U.S. dollar that should help and lower commodity prices that will hurt.
Regardless, Russell expects that the world’s major currencies will stay in the ranges they have traded in since the beginning of the year, with even the dollar remaining at or near the top of that range.