Russell Investments now expects weaker real GDP growth for 2012 than it forecast in December despite an improving outlook on equity markets.
Russell's team of global investment strategists expects 2.1% in real GDP growth for the year, down from its 2.5% December forecast, according to a news release.
The pace of growth is not expected to result in any meaningful changes to the unemployment rate, and the team expects the Federal Reserve to respond with another round of quantitative easing, Russell said.
However, Russell's strategists increased their year-end target for the Russell 1000 to 760 and the S&P 500 to 1,375, up from 720 and 1,300, respectively. The new targets represent a 9% price return and 11% total return with dividends added. While the equity forecast has improved, the Russell team lowered its forecast for the 10-year Treasury yield to finish the year at 1.8%, down from 2.6%.
Russell sees several downside risks for the rest of the year, highlighted by the “fiscal cliff” that will be reached in early 2013 when tax reductions and deductions expire, and mandated spending cuts are enacted. Other concerns include valuation models showing U.S. equities are fully valued and corporate profits coming under pressure with the sluggish growth rate.