BlackRock is out with its mid-year update to “The List” — five things investors should know for the rest of the year, and five things they should do.
“The first half of the year was filled with surprises that few could have foreseen — and yet markets seemed not to notice, carrying on with gusto,” according to BlackRock. “While we don’t believe we are entering a calm-before-the- storm environment, there are certainly factors that argue against complacency in the second half.”
Three of the 10 jump out at us.
1. Interest rates are trending up: “In one of the year’s biggest surprises, interest rates fell rather than rose as most (ourselves included) had anticipated,” according to the folks at BlackRock. “…With the economy rebounding, and the Fed still unwinding its bond purchase program, interest rates should begin to inch up again. More precisely, we believe the 10-year treasury could rise about 50 basis points (or half of one per cent) over the second half of the year.”
2. Inflation is finally picking up: The rise in producer and consumer prices suggests that inflation has bottomed out. Though inflation is low by historic standards “inflation erodes the value of your investments, and with bond yields still quite low, investors need to ensure some level of inflation protection is built into their portfolios,” according to BlackRock. “This again argues for a preference for stocks and other growth-oriented investments.”
3. Stocks are expensive but they’re “still the best place to be”: Stocks are expensive but they’re not in a bubble. “The stock market can still move higher this year, and we continue to favour investing in stocks over bonds, but we would be cautious,” according to BlackRock. “We would focus on those areas of the market that offer good value and downside protection. that means favouring large- and mega-cap stocks, as well as cyclical sectors like energy and international strategies. We would avoid, or trim positions in, small caps, retailers and the consumer discretionary sector.”
Here’s the rest of the list. Read the full report here »