Despite a big drop in the unemployment rate, last Friday's
non-farm payroll report
was a huge disappointment
The unemployment rate drop was driven by
more Americans leaving the workforce
. As a result, the participation rate fell to 62.8%, tying a
35-year low set in October. Meanwhile, job creation in the
United States plunged to the lowest level in years, and
wage growth remains elusive
The report's bottom line: While the economy is improving, the
labor market is still lagging,
bedeviled by structural problems.
So what are the investing takeaways? As I write in
my new weekly commentary
, there are three key implications for investors.
Remain cautious on U.S. consumer companies, both
discretionary and retail.
While the economy is improving, consumption remains soft and last
week's labor market report confirms why. Other than the top of
the income ladder, consumers have been spending from savings and
wealth gains, not income. This is not sustainable over the long
Last year it paid to be overweight U.S. stocks. This year
investors may want to embrace a more diversified
. While investors certainly don't want to abandon the United
States, I'm advocating that those still very overweight US
equities consider a broader equity allocation that includes
exposure to European equities.
While Europe is still struggling, the region is showing signs
of improvement. For example, European retail sales grew by 1.4%
last month, the fastest monthly gains since 2001. Though Europe
will doubtless grow much slower than the United States in 2014,
from an investment perspective it is often the
change that counts.
Stay underweight Treasuries, particularly short to medium
While I remain cautious on Treasuries, much of yield rise I
expect has already occurred. To the extent
inflation remains low
and the labor market recovery stays uneven,
long-dated Treasuries may be less vulnerable than
those in the short and middle parts of the yield curve
(meaning Treasuries with maturities roughly between 2 and 5
Russ Koesterich, CFA, is the Chief Investment Strategist
for BlackRock and iShares Chief Global Investment Strategist.
He is a regular contributor to
and you can find more of his posts