Last week, U.S. investors brushed off geopolitical worries,
pushing stocks to a record high. But it's a mistake to attribute
the rally solely to economic strength.
Despite some better
than-expected headline economic numbers, data have actually been
mixed. For instance, while there was
big February bounce in a key manufacturing gauge
, an important measure of the service sector sank to a four-year
low in February.
Meanwhile though job growth rebounded in February, other
metrics - including a still-low labor force participation rate
and high long-term unemployment - reaffirm that the U.S. labor
market is still struggling with structural challenges.
For now, however, as I write in
my new weekly commentary
, the "good enough" economic data, momentum and low rates are
to enter a sixth year. On March 9, 2009, the stock market
bottomed amid the throes of the financial crisis, and the next
day marked the start of an upturn.
So what does this mean for investors? I believe there are two
strong arguments for sticking with stocks, which I believe can
move higher in 2014.
While stocks are no longer cheap, equities still look like a
more attractive option than cash or bonds. Cash investments are
effectively paying nothing, and traditional areas of the bond
market offer little return on a post-inflation, post-tax
The macro environment.
continued low inflation and low rate
s as well as a gradually improving economy, an economic
environment that is supportive of stocks.
Still, while I expect the bull market to last for a sixth
year, I do foresee more modest U.S. market gains and more market
volatility in coming months, given ongoing geopolitical turmoil,
Fed tapering and the still-fragile environment in emerging
In addition, if U.S. economic data doesn't improve in coming
months or if the geopolitical situation worsens,
stocks and other risky assets may become more vulnerable
But for now, even after a five-year bull market and prospects
for more volatility ahead, I would encourage investors to
maintain their emphasis on stocks.
Source: Bloomberg, BlackRock research
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