2014 Will Be a Year of Moderation

By Max Chen, ETF Trends

The economy is moving along and the markets will continue to strengthen. However, investors should not expect a repeat of last year as growth moderates.

“We expect U.S. and global growth to pick up modestly in 2014 given stronger household balance sheets and less fiscal drag,” according to Russ Koesterich, Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist.

BlackRock expects the U.S. economy to expand 2.5% to 2.75%, up from 2% over the past few years, while global growth could rise to 3.5% from about 3% in 2013.

However, investors should remain vigilant if Capitol Hill bickers over another budget deal. Additionally, the labor market is still slow to pick up and wage growth has been subdued, which means households will keep a lid on their wallets.

Potential Federal Reserve tightening has weighed on the markets, but the Fed is committed to low short-term rates for the time being and has tapered its monthly bond purchasing plan.

“We foresee the 10-year Treasury yield modestly climbing this year, finishing 2014 at around 3.5%,” Koesterich added.

While gains may be muted, BlackRock suggests investors should stick to stocks. Specifically, Koesterich is overweight U.S. mega-caps, Eurozone stocks and Japanese equities.

“Against this economic backdrop, we continue to advocate overweighting stocks, which remain more attractively valued than bonds and cash,” Koesterich said. “That said, U.S. equity market gains will likely be more modest this year than in 2013, and international stocks have more room for multiple expansion.”

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