Are Fed Rate Hikes Still On The Table For 2019?

"The central bank's prevailing view throughout 2018 was that the strong performance of the U.S. economy would carry over into 2019," he explained, "but with new risks entering the picture, the Fed is now basically saying it'll wait to assess the latest economic data before making a decision on future rate increases--i.e., the data-dependent approach Powell has talked about."

In Eitelman's opinion, this doesn't necessarily mean that the Fed has shelved rate hikes for the year. "If the economic numbers in the U.S. remain reasonably good, I think that the Fed will probably have to increase interest rates again during the second half of 2019," Eitelman said, "especially given the strength of the labor market and increasing signs of wage growth." In the meantime, the Fed's willingness to adopt a wait-and-see approach has been well-received by markets, with the S&P 500® Index up roughly 5%, as of midday Jan. 11, since Powell emphasized this new approach on Jan. 4.

Is there room for optimism on global equities?

The sharp downturn last quarter led to some changes in the three lenses that Eitelman and the team of Russell Investments strategists assess markets by: cycle, valuation and sentiment. The slowdown in global growth, coupled with a stalling Chinese economy, lends more caution to the team's view of the current business cycle, Eitelman said. "While these data points are not recession indicators, they are meaningful downside risks that we are now taking into consideration," he noted.

The team has upgraded its valuation and sentiment outlook, he said. "In terms of valuation, given the big fourth-quarter selloff, our assessment is now that the global equity market is roughly fairly priced," he explained, "and while we still think that the U.S. market is expensive, we now see it as moderately expensive, as opposed to extremely expensive." Non-U.S. markets, he added, look fairly cheap at the moment.

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