More by the Same Author
2013-12-06 Bubble Watch: The Valuation & Sentiment Signs to Look For by Russ Koesterich of iShares Blog
Worried that the U.S. market is about to tilt into bubble territory? Though Russ doesn’t believe that U.S. equities are in a bubble yet, he highlights two sets of data investors can watch to gauge a bubble’s arrival.
2013-12-03 Nasdaq 4000: Stocks are Not Behaving Like It's 1999 by Russ Koesterich of iShares Blog
The Nasdaq Composite made news last week, moving past the 4,000 mark for the first time in 13 years. But, according to Russ, the current trip above the 4,000 level looks quite different from what was happening in 1999 and 2000.
2013-11-25 Why It's (a Little) Too Quiet on the Market Front by Russ Koesterich of iShares Blog
Stock market volatility remains unusually low. While this is partially justified by loose credit conditions and strong market momentum, the drop in volatility looks exaggerated and suggests investors are becoming too complacent.
2013-11-21 The Missing Ingredient of the Economic Recovery (Hint: It's Not Jobs) by Russ Koesterich of iShares Blog
Despite an improving labor market, household spending isn’t picking up enough to fuel a faster U.S. recovery. This missing ingredient of the economic recovery is to blame, says Russ.
2013-11-20 The Disinflationary Developed World: 2 Investment Implications by Russ Koesterich of iShares Blog
Inflation remains close to historic lows, not just in the United States but also in other large developed markets. Russ explains why this is the case and what it means for investors (hint: low-for-longer rates and another reason to consider underweighting Treasury-Inflation Protected Securities (TIPS)).
2013-11-18 Two Investments to Consider when You're Coming off the Sidelines by Russ Koesterich of iShares Blog
For investors on the sidelines of the equity market, Russ offers his take on which market segments to consider now and which to remain cautious of.
2013-11-14 In a Real (But Uneven) Recovery: Where to Remain Cautious by Russ Koesterich of iShares Blog
Last week brought evidence that while the U.S. recovery is uneven, it’s happening. For investors, the big takeaway is to remain cautious on interest-rate sensitive assets. Russ explains.
2013-11-11 Tech in the Time of Twitter: From Growth to Value Play by Russ Koesterich of iShares Blog
Despite the hype surrounding Twitter’s IPO, technology is a very different industry today than it was fifteen years ago. While a few high profile companies are making headlines, the sector is no longer a growth story. Nevertheless, tech still looks attractive as a value play.
2013-11-07 Welcome to the Two-Speed Economy by Russ Koesterich of iShares Blog
Russ explains why the U.S. economy is starting to look like a two-speed economy and what this means for investors.
2013-11-06 Welcome to the Two-Speed Economy by Russ Koesterich of iShares Blog
Russ explains why the U.S. economy is starting to look like a two-speed economy and what this means for investors.
2013-11-01 4 Reasons Japan Could Continue to be the Land of the Rising Stock Market by Russ Koesterich of iShares Blog
Japan has been the land of rising stocks this year -- Japanese equities are up nearly 40% year-to-date. Russ explains why he believes the market offers more upside potential and a near-term opportunity for tactical investors able to hedge the currency exposure.
2013-10-30 Why Stocks Advance Despite Mediocre Economic Data by Russ Koesterich of iShares Blog
The basic takeaway from last week’s economic data seems to be that we’re still in a world of 2% US economic growth with little evidence of a pickup. Yet stock markets have advanced and can move higher over the next six to 12 months? Russ explains why.
2013-10-28 How Real Estate Impacts the US Economy by Russ Koesterich of iShares Blog
Despite appreciating more than 10% over the past year, home prices still look reasonable and housing affordable. However, while there is little risk of another housing bubble, a significant pickup in interest rates could dampen housing activity and by extension, the recovery.
2013-10-24 Going Defensive? 3 Things to Consider First by Russ Koesterich of iShares Blog
With the threat of a default merely pushed out a few months, many investors continue to allocate to so-called “defensive” investments. However, because going defensive is not a free lunch, Russ says it’s important for investors to consider three aspects of their potential defensive postures.
2013-10-22 After the Minimalist Debt Ceiling Deal: The Good & Bad News by Russ Koesterich of iShares Blog
Last week, investors cheered that Washington finally reached a last-minute debt ceiling deal. But despite their big sigh of relief, the debt ceiling deal wasn’t all good news. Russ provides a quick look at the good, the bad and the investing implications of the compromise.
2013-10-17 The Short & Long-Term Implications of A Minimalist Debt Ceiling Deal by Russ Koesterich of iShares Blog
A deal to extend the debt ceiling and reopen the government is emerging. If it passes by tomorrow or shortly thereafter, the economy and markets will be spared the worst case scenario of a technical default. However, Washington’s inability to strike a more substantial bargain will have negative repercussions, over both the short and long term.
2013-10-16 Two More Reasons to Like Equities: Growth & Inflation by Russ Koesterich of iShares Blog
Russ offers more evidence supporting his preference for equities over bonds: Historically equities have tended to outperform bonds on a monthly basis in a growth and inflation scenario like the one we’re in today.
2013-10-08 Q3 Brings Plot Twists; Volatility to Continue in Q4 by Russ Koesterich of iShares Blog
Russ reviews how the third quarter shaped up vs. his expectations, noting which calls he got right and which he got wrong, and he updates his outlook for this quarter.
2013-10-04 The Banking Sector: Better, with Room for Improvement by Russ Koesterich of iShares Blog
Russ K. explains the good news behind his recent upgrade of the global financial sectors as well as the bad news keeping his sector outlook somewhat subdued.
2013-09-27 3 Reasons the Labor Market Will Continue to Frustrate the Fed by Russ Koesterich of iShares Blog
The Fed’s decision to delay tapering is an implicit acknowledgment that the labor market is far from healed. Russ explains why the labor market is likely to continue to frustrate the Fed and gives two implications for investors.
2013-09-25 After the Fed's Surprise: 4 Asset Allocation Implications by Russ Koesterich of iShares Blog
The Fed’s surprise no-taper announcement confirmed Russ’ expectation that the global recovery remains soft and that interest rates are likely to remain contained this year. What does this mean for investors? There are four implications for asset allocations, says Russ.
2013-09-20 5 Years Later: The Crisis We Haven't Tackled Yet by Russ Koesterich of iShares Blog
Five years after the Lehman bankruptcy, the proximate causes of the 2008 crash are no longer threats. But while the risk of another imminent financial system crisis has abated, there are two major issues that foretell a coming retirement funding crisis.
2013-09-16 From the Fed to Congress: 4 Washington Issues to Watch by Russ Koesterich of iShares Blog
After the Fed announcement next week, market attention is likely to shift toward Congress for the remainder of the fall. According to Russ, four key issues up for debate have the potential to add to near-term volatility.
2013-09-12 2 Unresolved Issues Challenging the Case for European Stocks by Russ Koesterich of iShares Blog
Russ explains the two key unresolved issues that are keeping his view of European stocks somewhat cautious, and he gives the next signposts to watch to gauge whether any near-term resolutions are likely.
2013-09-10 Investor Anxiety + Uncertainty = More Volatility Ahead by Russ Koesterich of iShares Blog
As Russ expected, both equity and bond market volatility have risen in recent weeks. Russ explains why this rocky road is likely to continue, and he provides two ideas for potentially insulating portfolios amid volatility.
2013-09-09 Get Ready for “Taper Lite”: 3 Signs the Labor Market Isn't Picking Up by Russ Koesterich of iShares Blog
While the overall US economy is healing, the labor market’s recovery continues to be frustratingly slow. Friday’s payroll report suggests investors should prepare for a less aggressive Fed, a more muted backup in interest rates and a bond market that can go up as well as down.
2013-09-04 4 Signposts To Watch for an Emerging Markets Turnaround by Russ Koesterich of iShares Blog
When will we see a significant and prolonged reversal in emerging markets (EM) stock performance? Russ says to watch for four signposts that could signify the EM underperformance tide is turning.
2013-08-29 Middle East Tensions, Oil Prices and the US Economy by Russ Koesterich of iShares Blog
A further escalation of violence in the Middle East will not only have a terrible human toll, it could also lead to rising oil prices, which in turn could hurt consumers and the global recovery. Russ explains the situation and shares how investors can prepare.
2013-08-23 Why it's Time to Reconsider European Equities by Russ Koesterich of iShares Blog
Given recent signs that the eurozone economy is stabilizing, is it time to consider European equities again? Russ explains why his answer is a qualified yes.
2013-08-19 Preparing Equity Portfolios for Rising Rates by Russ Koesterich of iShares Blog
While Russ doesn’t foresee a bond market meltdown, he does expect that rates will rise in coming years and he offers three suggestions for positioning equity portfolios in preparation.
2013-08-16 Investing Rationally if Markets Get Erratic by Russ Koesterich of iShares Blog
It can be hard to invest rationally when markets are volatile, but Russ is expecting markets to be just that come September. Knowing that market volatility can lead to bad investing behaviors, Russ highlights three behaviors to avoid during the potentially rocky road ahead.
2013-08-14 Focused Only on the US? Here's What You're Missing by Russ Koesterich of iShares Blog
Many investors remain fixated on what’s happening in the United States -- and particularly on what the Federal Reserve will do -- but Russ explains why they shouldn’t lose sight of what’s happening abroad.
2013-08-08 Coming Soon: September Volatility by Russ Koesterich of iShares Blog
Since spiking earlier this summer, market volatility is now back to spring lows. Investors, however, shouldn’t expect this calm to continue come September. Russ has four reasons why.
2013-08-02 3 Reasons Silver Is Not the Same As Gold by Russ Koesterich of iShares Blog
Many investors who remain cautious on gold wonder whether they should get their precious metal exposure through silver instead. In response, Russ explains why the two metals aren’t interchangeable.
2013-07-29 Why China Has Become a Value Play by Russ Koesterich of iShares Blog
Russ explains why it’s time for investors to change how they think about China, and he explains why there’s a strong case for viewing the Chinese market as a value -- rather than a growth -- play.
2013-07-25 No Bargains in the Consumer Discretionary Aisle by Russ Koesterich of iShares Blog
Russ has long advocated that investors remain cautious on consumer discretionary stocks. After last week’s weak economic data, he updates the case for this call.
2013-07-22 4 Reasons to Consider Investing in Frontier Markets by Russ Koesterich of iShares Blog
At a time when investors are worried about Chinese banks and Brazilian riots, investing in the riskiest areas of the emerging world seems counterintuitive. But according to Russ, there are four reasons why many investors should consider having a small allocation to frontier markets.
2013-07-19 7 Things Investors Should Know Now by Russ Koesterich of iShares Blog
Can stocks move higher? What are the best opportunities now in stocks and fixed income? Russ answers these questions and others in an update to his mid-year outlook.
2013-07-10 3 Risks that Could Derail the Market Rally by Russ Koesterich of iShares Blog
Stocks can withstand moderate rate increases, as we saw last Friday when they rallied despite a sell-off in bonds. But Russ K warns that they may not withstand these three other scenarios.
2013-07-09 Is Now a Good Time to Buy Gold? by Russ Koesterich of iShares Blog
No, says Russ. While Russ still believes that gold should be a part of a diversified portfolio, he explains why he advocates trimming holdings of the precious metal.
2013-07-05 Why Oil Has Proven Resilient by Russ Koesterich of iShares Blog
Crude oil has proven more resilient and less volatile this year (depending on which benchmark you use, it is either up or down in the single digits) than most other commodities. There are three main factors behind this.
2013-07-02 Preparing for the Second Half of 2013 by Russ Koesterich of iShares Blog
It’s halftime halfway through the year. That means Russ is looking back at what he got right and wrong in the first half of the year, and updating his expectations for the remainder of 2013.
2013-06-26 2 Ways to Play the US Energy Boom by Russ Koesterich of iShares Blog
Russ offers two ideas one perhaps obvious and one perhaps not for investors looking to potentially benefit from the US energy renaissance.
2013-06-25 Despite More Downside Risk, Stick with Stocks by Russ Koesterich of iShares Blog
Despite stocks’ recent declines and the rocky road ahead, Russ explains why he still prefers equities over bonds.
2013-06-24 The Case for Rotating into (Select) Cyclical Sectors by Russ Koesterich of iShares Blog
Although defensive sectors are back to outperforming cyclical sectors amid June’s market volatility, Russ still believes there’s a strong case for preferring cyclicals or at least select cyclicals
2013-06-21 Fed Tapering Won't Cause a Bond Market Armageddon by Russ Koesterich of iShares Blog
Even if the Fed scales back its pace of bond purchases later this year, Russ explains why investors shouldn’t expect rates to finish the year much higher than where they are today.
2013-06-19 3 Reasons to Consider Spanish Stocks by Russ Koesterich of iShares Blog
While Europe is not out of the woods yet, Russ is less concerned about the Spanish market.
2013-06-12 5 Reasons Not to Flee Non-US Dividend Stocks by Russ Koesterich of iShares Blog
“As bond yields rise, is it time to flee dividend stocks?” Russ explains why the answer is, no, at least when it comes to international dividend payers.
2013-06-11 6 Investing Implications of Friday's Jobs Report by Russ Koesterich of iShares Blog
While the jobs report on Friday merely confirmed that the recovery continues to chug along slowly, it does have six implications for investors.
2013-06-07 3 Reasons Not to Turn Away from Emerging Markets by Russ Koesterich of iShares Blog
Is it time to abandon underperforming emerging markets in favor of bets closer to home? Clearly “no,” says Russ and he explains why.
2013-06-04 Caught Between Slow Growth and the End of Easy Money by Russ Koesterich of iShares Blog
Two contradictory investor concerns are to blame for a recent pickup in market volatility. Russ explains which of the concerns is premature and what that means for investors.
2013-05-31 The Fixation on the Fed: 3 Investing Implications by Russ Koesterich of iShares Blog
Hypersensitive investors are reacting to every utterance from central banks like the Federal Reserve and the Bank of Japan. Russ shares three investing implications of this fixation.
2013-05-31 The Most Important (and Widely Ignored) Economic Number by Russ Koesterich of iShares Blog
While economic numbers like GDP or the monthly non-farm payroll report typically garner the headlines, Russ explains why investors should pay more attention to and may want to alter their assumptions based on -- the Chicago Fed National Activity Index (CFNAI).
2013-05-24 4 Ideas for Today's Low Inflation Environment by Russ Koesterich of iShares Blog
There’s certainly no shortage of things to worry about right now related to the US economy. But one thing we’re not too worried about right now: Inflation. Not only is inflation low, but the latest numbers show it’s actually falling. And as I write in my commentary this week, inflation is unlikely to become a problem in the United States for at least another 12 to 18 months. Why? There are a number of headwinds keeping US prices low in the near term.
2013-05-24 4 Market Risks Worth Worrying About by Russ Koesterich of iShares Blog
The risk of a US slowdown Not discounted in US valuations. While US valuations currently look reasonable, they’re predicated on a US economy growing at around 2% to 2.5%. The risk of slower growth is not priced into the market. If US economic data continues to disappoint, and we get a growth hiccup in the second or third quarter, then we’re likely to see some US market weakness.
2013-05-24 After the Sell Off in Japan: 2 Reasons Not to Panic by Russ Koesterich of iShares Blog
Russ explains why Thursday’s market correction in Japan hasn’t changed his view that investors should consider a market weight to Japanese stocks.
2013-05-22 Where is inflation headed? What will it mean for investors? by Russ Koesterich of BlackRock Investment Management
Slow economic growth and long-term headwinds should keep inflation contained. Low inflation should help support equity markets and high yield bonds, but may be a negative for gold prices. The inflation environment should also help prevent interest rates from rising too fast.
2013-05-21 Putting Cash to Work: 3 Ways to Enter the Market Today by Russ Koesterich of iShares Blog
With global equities up more than 25% since their bottom last June, many investors are wondering: “Is it too late to move cash from the sidelines to stocks?” No, says Russ, and he offers three ideas for where find value today.
2013-05-17 4 Reasons to Still Hold High Yield by Russ Koesterich of iShares Blog
With high yield spreads historically tight and prices at all-time highs, some market watchers are wondering whether it’s time to jump off the high-yield bandwagon. Russ weighs in and explains why this asset class is still worth holding.
2013-05-15 Dissecting the Rally: What Sectors Look Attractive? by Russ Koesterich of BlackRock Investment Management
The current rally has been fueled by investors looking for relatively "safe" areas of the market. As such, the classic defensive sectors, such as utilities, consumer staples and healthcare, have been outperforming. This trend may be changing, indicating that sectors such as energy and technology are growing more attractive.
2013-05-15 How to Take Advantage of the Great (Sector) Rotation by Russ Koesterich of iShares Blog
The real Great Rotation may just be a shift to cyclical sectors from defensive ones rather than a move to bonds from stocks. Russ explains and offers 3 ways to play this rotation.
2013-05-10 3 Reasons to Explore the Frontier by Russ Koesterich of iShares Blog
Though frontier markets have outperformed developed and emerging markets so far this year, it’s not too late to explore the frontier. Russ offers three reasons to consider having a small strategic allocation to “pre-emerging” world equities.
2013-05-09 Why Reinhart & Rogoff Still Matter by Russ Koesterich of iShares Blog
Despite Reinhart and Rogoff’s methodology mistakes, their widely cited paper’s basic conclusion still holds. Russ K warns that both policy makers and investors ignore it at their own peril.
2013-05-08 US Economy Should be "Good Enough" for Stocks by Russ Koesterich of BlackRock Investment Management
The April employment report confirms that the US is on a slow-but-positive course of economic growth. This environment should be conducive to further gains in equity prices. Europe, in contrast, continues to struggle and investors should approach that region with caution.
2013-05-02 In Treasuries, the Risks Outweigh the Rewards by Russ Koesterich of BlackRock Investment Management
The 1Q GDP report was mixed, but the lack of income growth remains troubling. Oil prices are likely to remain range-bound, but that should be good enough to help energy stocks. While yields could decline further in the near-term, Treasuries look quite unappealing.
2013-04-30 Beyond Gold: 4 Reasons to Think Energy by Russ Koesterich of iShares Blog
While the sell-off in gold has dominated headlines lately, another commodity oil has also experienced price declines in recent months. But despite crude’s drop, Russ is still a fan of energy stocks for four reasons.
2013-04-25 CASSHing-Out by Russ Koesterich of iShares Blog
Russ explains why he’s no longer advocating the concept of investing in certain smaller developed countries known as the CASSH countries.
2013-04-18 After Boston: Why the US Market is Vulnerable by Russ Koesterich of iShares Blog
The events in Boston were a tragic reminder that markets still face risks from terrorism and geopolitics. In fact, the US market is especially vulnerable to such exogenous shocks right now given that there isn’t much bad news discounted into prices.
2013-04-12 Housing Bubble II? by Russ Koesterich of iShares Blog
It might seem like the housing bubble just burst, but as the housing market stages a comeback, investors are asking if we’re already facing another bubble. Russ explains why home prices aren’t in a bubble but home builder stock valuations may be.
2013-04-05 Ask Russ: All About Emerging Markets by Russ Koesterich of iShares Blog
Russ answers more client and reader questions this time about emerging market equities and debt.
2013-03-28 2 Factors Keeping a Lid on Interest Rates by Russ Koesterich of iShares Blog
Investors have been expecting interest rates to rise, but with the yield on the 10-year Treasury bond back below 2%, Russ explains two structural factors that are slowing the rate rise.
2013-03-26 The Real Worry in Europe (Hint: It's Not Cyprus) by Russ Koesterich of iShares Blog
Investors have enjoyed six months of relative quiet in Europe, but the situation has flared up again over Cyprus. While many investors are wondering why they should care about such a tiny part of Europe, Russ says the answer is because it is indicative of a bigger concern.
2013-03-20 The Most Important US Economic Number Now by Russ Koesterich of iShares Blog
Wondering about the outlook going forward for the US economy? Russ shares the economic number that may give you a clue.
2013-03-18 Don’t Forget About Emerging Market Equities by Russ Koesterich of iShares Blog
While emerging market stocks are underperforming US stocks, Russ explains why longer-term investors may want to give EM markets another look.
2013-03-14 3 Reasons It's Not Too Late to Consider Emerging Market Bonds by Russ Koesterich of iShares Blog
After the recent rally in emerging market bonds, is it too late to allocate to this asset class? Not for long-term investors, says Russ and he offers 3 reasons why.
2013-03-12 After Last Week's US Rally: Proceed with Caution by Russ Koesterich of iShares Blog
While last week's rally was supported by better-than-expected economic data and improving investor sentiment, the magnitude of US stocks' advance is starting to cause some indicators to flash yellow. Russ explains.
2013-03-07 After the Dow Record Close: What Comes Next? by Russ Koesterich of iShares Blog
After Tuesday's record setting Dow Industrials close, are US stocks still cheap? Can the market move higher? Russ answers these questions and more.
2013-03-05 The Sequester: A Second Quarter Worry by Russ Koesterich of iShares Blog
Now that March 1 has come and gone, what will the sequester mean for the US economy and markets? Maybe not much in the near term, but Russ explains why the second quarter will be a different story.
2013-03-01 3 Reasons Market Volatility Has Returned by Russ Koesterich of iShares Blog
In the last week, stocks have pulled back and volatility has once again spiked. Russ outlines the 3 factors that hindered the rally and explains the implications for investors.
2013-02-25 Market Gains Will be Tougher to Come By by Russ Koesterich of BlackRock Investment Management
Markets saw a return to more volatile conditions last weeka trend that is likely to continue. The sequester is likely to contribute to an increased fiscal drag in the first half of the year. Nevertheless, stocks have the potential for increased gains, although the road ahead will be bumpier.
2013-02-22 The 4 New Defensive Strategies by Russ Koesterich of iShares Blog
Waiting for a market correction? Wondering how to potentially protect your gains? Forget merely opting for traditional defensive sectors. Instead, consider Russ' four suggestions.
2013-02-20 Two New Country Views for a Two-Speed Global Economy by Russ Koesterich of iShares Blog
The global economy is stuck in a two-speed regime: Developed markets like Europe, Japan and the United States are stalling, while China is re-accelerating. Russ explains what this divergent growth landscape means for his country outlooks.
2013-02-19 All is Not Well Down Under by Russ Koesterich of iShares Blog
Though Russ continues to like Australian equities for the longer term, he explains why he may downgrade his near-term view of the Australian market soon.
2013-02-15 All is Not Well Down Under by Russ Koesterich of iShares Blog
Though Russ continues to like Australian equities for the longer term, he explains why he may downgrade his near-term view of the Australian market soon.
2013-02-13 January Retail Sales: Why Stocks May Be Vulnerable by Russ Koesterich of iShares Blog
When the Commerce Department releases the headline January retail sales number on Wednesday, economists expect to see a big drop from December. Russ explains why the number could come in even lower and the implications for investors.
2013-02-11 When to Worry About Inflation by Russ Koesterich of iShares Blog
Though the Fed continues to flood the US economy with money, Russ explains why inflation isn't likely to be a problem until 2014 and what investors can do in the meantime to prepare.
2013-02-08 Overcoming 3 Bad Investing Behaviors by Russ Koesterich of iShares Blog
Do you avoid the stock market? Shun diversification? Trade inefficiently? Russ and guest blogger Nelli Oster an investment strategist on Russ' team examine three common bad behaviors among investors and provide tips for potentially mitigating their impact.
2013-02-01 2 Major Threats Facing the US Economy by Russ Koesterich of iShares Blog
While markets cheered the House of Representatives' recent vote to temporarily suspend the debt ceiling, the US economy isn't out of the woods yet. Russ highlights the two major risks it still faces.
2013-01-31 A Look Back at My 2012 Calls by Russ Koesterich of iShares Blog
It's time again for Russ K's annual look back at the investment calls he made in 2012. Find out what he got right and the couple of things he got wrong.
2013-01-25 The Case for Japan with a Caveat by Russ Koesterich of iShares Blog
While Im optimistic that Japanese stocks can move higher in coming months, Id advocate investing in them only if dollar-based investors have the flexibility to hedge the currency effect of a weaker yen (more on that below). So with that caveat out of the way, here are four reasons why I think Japanese stocks can move higher in the near term.
2013-01-23 Economic Backdrop Supports Stocks, Credit Sectors and Munis by Russ Koesterich of BlackRock Investment Management
Thanks to solid earnings, some decent (if mixed) economic news and indications that the debt ceiling debate may be delayed slightly, stocks posted additional gains last week, continuing their strong start to 2013. For the week, the Dow Jones industrial average climbed 1.2% to 13,649, the S&P 500 index advanced 1.0% to 1,485 and the NASDAQ composite rose 0.3% to 3,134. Bonds have remained relatively steady, with the 10-year Us treasury closing the week at a yield of 1.84%, two one-hundredths lower than the previous Friday close.
2013-01-22 Consumer Staples: Don't Overpay for Safety by Russ Koesterich of iShares Blog
Many investors have flocked to the perceived safety of defensive sectors over the past few years, including consumer staples. But Russ gives three reasons they might want to think twice about the sector now.
2013-01-17 Is the US Consumer Back? by Russ Koesterich of iShares Blog
Some market watchers are interpreting Tuesday's better-than-expected US retail sales report as a sign that the US consumer is coming back. But as Russ explains, a closer look at the numbers shows this much heralded return is likely to be delayed a bit longer.
2013-01-16 3 Reasons the Stock Market Rally Could Falter by Russ Koesterich of iShares Blog
Enjoy the US stock market rally while it lasts. Russ Koesterich has three reasons why investors should remain cautious in the near term.
2013-01-11 2 Reasons to Stick With Emerging Markets by Russ Koesterich of iShares Blog
Think emerging markets equities have run their course? Not so fast despite recent strong performance, Russ explains why there's room for further EM gains in 2013.
2013-01-08 3 Key Dates to Watch After the Fiscal Cliff Deal by Russ Koesterich of iShares Blog
After last week's partial deal, Russ explains when investors should expect more market volatility and another round of late-night drama from Washington.
2013-01-08 Early 2013 Looks to Feature Slow Growth and Ongoing Fiscal Drama by Russ Koesterich of BlackRock Investment Management
Stock markets started 2013 off with a bang, as investors expressed relief over the down-to-the-wire agreement on the fiscal cliff that came on January 1. For the week, the Dow Jones industrial average jumped 3.8% to 13,435, the S&P 500 index rose 4.6% to 1,466 and the Nasdaq composite advanced 4.8% to 3,101. Although the deal reached last week was good news for the markets, Washington's fiscal soap opera is far from over. Although the deal reached last week was good news for the markets, Washingtons fiscal soap opera is far from over.
2013-01-03 Outlook 2013: Fiscal Cliff Remains Unresolved, but Opportunities Still Exist by Russ Koesterich of BlackRock Investment Management
As we look ahead to 2013, it is impossible to make any sort of forecast without first turning our attention to the still-unresolved fiscal cliff debate. We have long said that unless we were to see significant movement on the issues of tax rates and entitlement spending, the most likely outcome would be some sort of bare-bones deal. At the time of this writing, congress and the President were still negotiating, but our analysis suggests that such a bare-bones resolution remains the most probable result, even if it does not come before the January 1 deadline.
2013-01-03 5 Investment Ideas for a Post-Fiscal Cliff Deal World by Russ Koesterich of iShares Blog
As discussed in previous posts, Congress kicked off the New Year with a bare bones deal to avert (or at least delay) the fiscal cliff. Though markets responded positively to the news Wednesday morning, the euphoria isn't likely to last.
2013-01-02 Deal or No Deal? Assessing a Bare Bones Fiscal Plan by Russ Koesterich of iShares Blog
A grand bargain in fiscal cliff negotiations remains elusive, but a bare bones deal seems likely. Russ K explains what that means for the economy and investors.
2012-12-19 With German Growth Slowing, Time to Take Some Profits? by Russ Koesterich of iShares Blog
Overweighting Germany has made a great deal of sense this year, but now Russ gives 3 reasons why it may be time to take some profit and revert to a neutral position.
2012-12-17 Fiscal Cliff Deadlines Draw Near by Russ Koesterich of BlackRock Investment Management
In addition to the seemingly never-ending focus on the fiscal cliff, markets turned their attention to last week's Federal reserve meeting and the corresponding announcement of the central bank's continuation of its bond-purchase program. Following a very brief rally after the announcement, however, stock prices fell and ended the week marginally lower. For the week, the Dow Jones industrial average declined 0.2% to 13,135, the S&P 500 index fell 0.3% to 1,413 and the NASDAQ composite dropped 0.2% to 2,971.
2012-12-15 The Cost of Viewing the US as a Safe Haven by Russ Koesterich of iShares Blog
Since exiting the recession in mid-2009, US stocks have significantly outperformed international markets. But can the United States still be viewed as a safe port in a storm? Russ K explains why it might be time for investors to consider raising their allocation to international stocks.
2012-12-13 3 Potential Scenarios for 2013 by Russ Koesterich of iShares Blog
Despite getting lucky in 2012, many of the major risks that economies and markets faced this year remain. With the current environment in mind, Russ K shares his 3 potential scenarios for 2013 along with potential investment strategies for each.
2012-12-12 Jobs Growth, Cliff Negotiations Continue Slow Pace by Russ Koesterich of iShares Blog
As Russ K has said in the past, the danger posed by the fiscal cliff is not solely whether we go over the side or not it also matters what shape our economy is in before the plunge. Last week's jobs report may have seemed like good news for the latter, but unfortunately a closer look at the numbers revealed a mixed bag.
2012-12-07 3 Implications of a Fiscal Cliff Tax Hike by Russ Koesterich of iShares Blog
From the outside, its hard to find much evidence that Washington is getting closer to a fiscal cliff deal. Perhaps there is more going on behind the scenes than the headlines suggest, but as of today it is hard to find much evidence that the odds of a deal have risen. As the potential for fiscal drag rises, it is worth reiterating why this is so dangerous. From my perspective, the biggest risk to the economy, and to financial markets, comes from the tax side of the equation.
2012-12-05 Waiting for Signs on the Fiscal Cliff and From the Fed by Russ Koesterich of iShares Blog
Investors are stuck between a rock and a hard place: Theyre trying to plan for the end of 2012, while also looking ahead to 2013. Its being reflected in the questions Im getting from clients right now, who are worried both about the fiscal cliff and the outlook for interest rates in 2013. As we saw last week, the markets are focused on every utterance out of Washington on the fiscal cliff. For better or worse, this is unlikely to change until we have a deal. And in terms of getting to one, the truth is we did not see much progress last week.
2012-11-30 3 Reasons to Hold Off on Holiday Sales Celebrations by Russ Koesterich of iShares Blog
Is the US consumer saying goodbye to the Great Recession and hello to a heady holiday season? Initial holiday sales results may paint a rosy picture, but Russ K explains why investors shouldn't be prematurely uncorking the New Year's champagne.
2012-11-26 The Calm Before the Storm? by Russ Koesterich of iShares Blog
Between the US Thanksgiving holiday and a recessed Congress, there was not much news to drive the markets last week. Russ K expects that to change this week, and he explains why, in the face of potentially higher market volatility, he favors municipal bonds.
2012-11-22 Two Portfolios Moves to Consider As Fiscal Cliff Looms by Russ Koesterich of iShares Blog
As fiscal-cliff gridlock reigns in Washington, Russ K has two portfolio moves to consider: going neutral on industrials and overweighting global technology stocks.
2012-11-20 Favoring France: The Newest Bright Spot in Europe by Russ Koesterich of iShares Blog
Europe may be stabilizing, but it's not out of the woods yet. One bright spot on the continent? France. Russ explains why he would now overweight the country's equities.
2012-11-19 4 Reasons Not to Taiwan On by Russ Koesterich of iShares Blog
Russ K shares four reasons hes downgrading his view of Taiwan from overweight to neutral and shares potential single country solutions he prefers instead.
2012-11-15 3 Reasons Not to Flee Dividend Stocks by Russ Koesterich of iShares Blog
As the fiscal cliff approaches, investors are becoming wary of dividend stocks, unsettled by the potential for a near tripling of the tax on dividends. But Russ K explains why he remains comfortable with dividend paying stocks with one major exception.
2012-11-13 Seeking Shelter from the Storm? Consider Mega Caps by Russ Koesterich of iShares Blog
Russ Koesterich discusses how mega cap stocks are attractively valued and may be more resilient to the impact of the potential fiscal cliff.
2012-11-12 What If US Economic Growth Is Over? by Russ Koesterich of iShares Blog
A new research paper argues that investors may be grossly overestimating how fast the United States is likely to expand in the coming decades. Could this be the case? Russ K weighs in.
2012-11-09 With the Election Over, Get Ready for the Fiscal Cliff by Russ Koesterich of iShares Blog
Russ Koesterich discusses how the close election could translate into more gridlock on the fiscal cliff, as well as longer-term tax and entitlement reforms.
2012-11-09 What If US Economic Growth Is Over? by Russ Koesterich of iShares Blog
A new research paper argues that investors may be grossly overestimating how fast the United States is likely to expand in the coming decades. Could this be the case?
2012-11-06 How the Election Will Affect the Fiscal Cliff by Russ Koesterich of iShares Blog
In the final hours before the election, Russ takes a look at potential outcomes and what they would mean for avoiding the fiscal cliff.
2012-11-05 3 Reasons to Consider Russia by Russ Koesterich of iShares Blog
With US investors largely focused on domestic matters these days, it can be easy to miss potential opportunities in international investing. Here, Russ K discusses the pros and cons of one such opportunity Russian equities.
2012-11-02 High Yield is Looking Expensive by Russ Koesterich of iShares Blog
High yield has enjoyed a rally over the last several months. Russ explains why it may be a good time to reexamine your exposure to the asset class.
2012-10-31 US Stocks Facing a Bumpy Ride by Russ Koesterich of iShares Blog
The US stock exchanges are slated to reopen for trading on Wednesday, after Hurricane Sandy prompted the longest weather-related closure of the New York Stock Exchange since 1888. What can investors expect when trading resumes? Russ K explains.
2012-10-29 Narrowing It Down: Single Country vs. Broad Exposure by Russ Koesterich of iShares Blog
With the number of exchange traded products continually growing (globally, there are now more than 4700 ETPs and counting), an interesting debate has arisen about whether investors should gain access to international equity markets through a fund that tracks a broad benchmark or through more granular regional or country exposures. Typically choice is a positive thing, but it's understandable that the size and scope of the ETP market can add a layer of complexity to an investor's selection process.
2012-10-23 Going Cheap with Chinese Stocks by Russ Koesterich of iShares Blog
Inexpensive valuations and stabilizing growth make Chinese stocks a category to watch right now. Russ K explains his overweight view of the controversial country.
2012-10-22 3 Investment Strategies for the New World by Russ Koesterich of iShares Blog
No doubt about it the investment climate has changed, and it's unlikely to change back anytime soon. Russ K gives 3 possible solutions for investors seeking to adjust to the new investment world.
2012-10-19 Beyond Borders: Currency Considerations for Investing by Russ Koesterich of iShares Blog
As more international assets are finding their way into investment portfolios, it's important for investors to recognize the effect that currency exposure may have on their portfolios.
2012-10-18 As Global Growth Falters, Consider Emerging Markets by Russ Koesterich of iShares Blog
Global growth this year is forecast to lag that of both 2011 and 2010, and the outlook for 2013 isn't much better. These sobering forecasts are bolstering Russ K's view that investors should consider being overweight emerging market stocks.
2012-10-15 The New Investment World is Not Near, It's Here by Russ Koesterich of iShares Blog
The recent pace and magnitude of economic change has left many investors disoriented, to say the least. Russ K explains why this new environment is unlikely to change any time soon, which may have implications for investors' current and long-term strategies.
2012-10-10 Potential Picks for a Yield-Starved Portfolio by Russ Koesterich of iShares Blog
Yield-hungry investors today are faced with a stark choice: accept lower yield or more risk. Russ K explains why given those options, investment grade bonds may be one of the better bargains.
2012-10-01 Dont Be Fooled By September's Market Rally by Russ Koesterich of iShares Blog
September has historically been the worst month of the year, but this time around it did not play to script. The surprising rally distracted complacent investors from signs of increasing volatility. Russ K explains.
2012-09-28 Look Out Below! The Fiscal Cliff Steepens by Russ Koesterich of iShares Blog
Despite the recent happy headlines, most measures of US economic activity point to slower growth, which makes the threat of the fiscal cliff pushing the US economy into a recession even greater. Russ K explains how investors can prepare.
2012-09-27 QE3: Better for Gold than the Economy? by Russ Koesterich of iShares Blog
The Fed's recent actions may not have much impact on the economy, but, as Russ explains, keeping interest rates low for an extended period may help support commodities, particularly gold.
2012-09-25 Seeking Solace in Northern Europe by Russ Koesterich of iShares Blog
The risks in Europe are slowly improving, but it will take a long time to fully implement needed reforms. Until that happens, Russ will continue to focus his European exposure on some northern countries.
2012-09-21 About That Swiss Neutrality by Russ Koesterich of iShares Blog
Swiss stocks still merit a positive long-term outlook but on a short term basis, Russ is changing his allocation to underweight from neutral.
2012-09-18 Housing Recovery? Try Long Convalescence by Russ Koesterich of iShares Blog
The US Federal Reserve's decision to expand quantitative easing is dramatic, but we don't think it will have a significant impact on the US housing market. While the extra liquidity is supportive of risky assets in the very near-term, lower mortgage rates are not a game-changer for a consumer still struggling with little income growth and too much debt.
2012-09-14 QE3: Ineffective Parachute for Fiscal Cliff by Russ Koesterich of iShares Blog
While the most likely scenario is that Washington reaches a compromise at the last minute, until then the uncertainty will keep the markets volatile and potentially drag down fourth quarter growth. Given recent comments out of Congress, there is also a non-trivial chance that we will, at least temporarily, go over the cliff. If that happens, QE3 will not be a particularly effective parachute.
2012-09-11 Ready, Set, Fed! Weak Jobs Report Raises QE3 Odds by Russ Koesterich of iShares Blog
Russ says the US Federal Reserve Open Market Committee has more reason to consider quantitative easing at this week's meeting, after the latest payroll report suggests the US economic recovery is likely to remain weak into the end of the year.
2012-09-04 An Upgrade of UK Equities by Russ Koesterich of iShares Blog
With UK economic growth showing signs of stabilization, the downside of investing in the region now appears more balanced versus the potential benefits. Russ believes it's time to upgrade equities from the United Kingdom to a neutral status.
2012-08-31 Prepare Now for the Looming Fiscal Cliff by Russ Koesterich of iShares Blog
The general election season is finally upon us, and investors should begin shifting their focus from theoretical discussions about the impending fiscal cliff of potential tax hikes and spending cuts to more concrete action plans of what to do about it.
2012-08-29 A Two-Pronged Case for Holding Gold by Russ Koesterich of iShares Blog
Gold continues to benefit from today's low interest rate monetary climate, and Russ says its diversifying effects mean the metal can be a valuable risk management tool for investors.
2012-08-24 Russ Ks Guide to Economic Indicators (Infographic) by Russ Koesterich of iShares Blog
Pundits like to throw around a lot of numbers when trying to predict the direction of the US economy. The most popular economic indicators, however, aren't necessarily the best. Russ K explains why the economic indicators you hear most often are overrated and identifies which indicators you should use instead.
2012-08-22 The Bullish Case for Energy Stocks by Russ Koesterich of iShares Blog
Lower crude oil inventories and less spare capacity among OPEC oil producers are just two of many reasons why I continue to be bullish on energy and energy stocks over the long term. As I've been writing about for months, oil supply remains tight by historical standards. Among the reasons I gave in a post early this summer, I expect crude prices to rebound in the long term...
2012-08-17 Groundhog Day: Will Septembers Sell-off Repeat? by Russ Koesterich of iShares Blog
Investors might feel they are trapped in their own version of Groundhog Day this year as Russ K expects September, which has historically been the worst month of the year for capital markets, to once again fall victim to its well-documented negative seasonal bias.
2012-08-13 Thinking about Treasuries? 2 Reasons to Think Again by Russ Koesterich of iShares Blog
The Fed will soon own more long-term Treasuries than the entire private sector. Russ explains the implications of this milestone for US long-dated debt and shows investors where to look for more attractive alternatives.
2012-08-10 Global Telecom Stocks Lose Luster by Russ Koesterich of iShares Blog
As their prices have increased in recent months, global telecommunication stocks have started to lose some of their luster. Russ K explains why factors such as valuation and profitability have prompted him to change his view of the sector.
2012-08-08 CASSH-ing In by Russ Koesterich of iShares Blog
Many of the large, developed markets, including the United States, are mired in excess debt and prolonged deleveraging. Russ believes that some of the smaller developed countries the ones he refers to as the CASSH countries -- are proving more resilient.
2012-08-05 2012 Outlook: Signposts for the Second Half by Russ Koesterich of iShares Blog
Continued slow global growth or a recession? Russ offers some signs investors can watch for to help determine which scenario is likely to play out in 2012.
2012-08-02 Mythbusting: How Elections Affect Markets by Russ Koesterich of iShares Blog
Elections do matter for the markets, but not necessarily for the reasons that investors tend to believe. Ahead of the next presidential election, Russ debunks some common myths surrounding markets and elections.
2012-08-01 Whither Global Stocks? Be Sure to Track This Data by Russ Koesterich of iShares Blog
Sometimes, either weak economic numbers or strong economic numbers can point to a surge in US and global equities. This could be one of those weeks. Russ has his eye on two important economic reports that are being released this week, and he explains why weak data may be positive for global equities.
2012-07-26 Days of Reckoning - The Potential Impact of the 2012 Elections on the Markets by Russ Koesterich of iShares Blog
Elections can, and often do, matter for markets, but not necessarily for the reasons investors tend to emphasize. For example, there is little historical evidence that markets perform better or worse depending on which party occupies the White House. There is also no concrete evidence that markets do better under divided government, a myth that seems to have taken hold thanks to the bull market of the 1990s.
2012-07-25 US Utilities: Don't Overpay for Yield by Russ Koesterich of iShares Blog
As short-term interest rates remain at or close to zero, investors starved for income should be wary of overpaying for yield, particularly when it comes to US utilities. In the search for yield, Russ believes investors have pushed US utilities prices too high. His advice: Don't overpay for yield.
2012-07-25 After the Downgrade: German Stocks or Bonds? by Russ Koesterich of iShares Blog
Amid rising uncertainty surrounding Europe, Moody's earlier this week lowered its outlook for Germany. Now, given the likelihood that Europe will continue to be a source of economic risk and investor angst, many investors are wondering whether they should stick with German assets. Should investors stick with German assets? Russ says the answer is yes on German stocks but no on the country's bonds.
2012-07-20 The Fiscal Cliff: 4 Reasons To Be Concerned by Russ Koesterich of iShares Blog
The bottom line: If were still stuck at an impasse come fall, investors should consider positioning their portfolios for a higher probability of a recession in 2013 by implementing five strategies that I outline below.
2012-07-17 Global Slowdown: Preparing for a Recession by Russ Koesterich of iShares Blog
While Russ believes that the most likely scenario for the global economy in 2012 is continued slow growth, he explains what's behind the recent global slowdown and what investors may want to consider doing if it grows worse.
2012-07-12 4 Reasons to Like China by Russ Koesterich of iShares Blog
The Chinese central bank last week announced its second surprise rate cut within a month. The action from the central bank was an acknowledgement that the worlds second largest economy is slowing. Despite Chinas economic slowdown, Russ continues to hold an overweight view of Chinese equities for four reasons.
2012-07-10 Swimming with Black Swans: The Volatile Decade Ahead by Russ Koesterich of iShares Blog
So long smooth sailing. Russ Koesterich explains why he expects the rest of this decade to be characterized by more market volatility and why seemingly out-of-the-ordinary Black Swan events could become more frequent.
2012-07-03 After the EU Summit a Host of Unresolved Questions by Russ Koesterich of iShares Blog
Last weeks European summit went better than it might have, according to Russ, but it fell far short of solving the regions structural issues. Here he outlines the big questions facing the European Union and why the regions crisis will drag on.
2012-06-29 The Coming Oil Supply Gap by Russ Koesterich of iShares Blog
Prices at the gas pump are falling and slow global growth is expected to keep oil prices down in the near term. But Russ has a handy new chart showing why he expects crude prices to rebound in the longer term: global oil demand is likely to greatly outstrip supply by 2030.
2012-06-27 The Rocky Road Ahead This Year by Russ Koesterich of iShares Blog
Back in February Russ warned that an eerie quiet had settled over the market and investors should prepare for an increase in volatility. Well, four months later that eerie quiet has lifted, and Russ outlines three reasons he expects the second half of this year to be much more volatile than the first.
2012-06-26 Where in the World is Risk Today by Russ Koesterich of iShares Blog
With the sovereign debt crisis centered in the developed world, the traditional notion that all developed markets are less risky for investors than all emerging markets doesnt hold up anymore. Today, while developed markets certainly top the list of the least risky countries and vice versa for emerging markets, some developed markets are now just as risky as emerging markets. At the same time, some emerging countries are now just as safe as their developed market counterparts.
2012-06-22 Dont Expect A Double Dip This Year by Russ Koesterich of iShares Blog
Renewed fears of a US double dip are making the rounds. While Russ gives four reasons why the United States is not likely to tip back into recession this year, he has a word of caution about a risk looming over 2013.
2012-06-20 Not-So-Indian Summer: 5 Reasons to Underweight India by Russ Koesterich of iShares Blog
Russ elaborates on his underweight view of India with a BlackRock Investment Institute list of five things wrong with the Indian economy, and shares how investors can be positioning portfolios as a result.
2012-06-19 After the Greek Vote, Now What? by Russ Koesterich of iShares Blog
The relief rally Monday following Sundays Greek election was short lived. To be sure, the outcome of Sundays election is near-term good news for investors. A government led by the pro-bailout New Democracy is likely to follow more of the austerity program and to try, at least for now, to keep Greece in the euro. That said, there are two main reasons why markets arent continuing to celebrate the Greek vote.
2012-06-12 Why Oil Prices Can Move Higher by Russ Koesterich of iShares Blog
With oil prices down roughly 25% from their 2012 peak, many investors are asking about the future direction of crude. In my opinion, while fears of a hard landing in China and overall weakness in global growth are likely to keep prices down in the near term, crude should rebound in the longer term for three reasons.
2012-06-04 After Disappointing Jobs Data, Now What? by Russ Koesterich of iShares Blog
Stocks tumbled Friday after particularly disappointing May jobs data. Russ provides his take on what the report means for the US economy and stocks going forward. First, the implications for the economy: As jobs numbers tend to lag broader economic activity, the report doesnt in itself suggest that the United States is slipping back into recession. In addition, its worth calling out that according to the new data, the United States created only 69,000 net new jobs in May, less than half of what economists were expecting and the slowest rate of net new job creation in a year.
2012-06-04 4 Reasons Europe is a Major Risk for US Stocks by Russ Koesterich of iShares Blog
Some investors have argued that events in Europe are having a disproportionate impact on US stocks. Their logic: the US is in the midst of a recovery, albeit a fairly anemic one, that is unlikely to be derailed by Europes travails. Its true that the US economy is doing much better than Europes, and especially southern Europes. But from my perspective, the trajectory of the US economy and the US stock market are very much tied to eurozone events. Here are four reasons why US investors should not underestimate the potential impact of events in Europe.
2012-05-31 The Eurozone Crisis: 4 Developments to Watch by Russ Koesterich of iShares Blog
With the future of Greece and the eurozone still so uncertain, many investors are asking how they might predict what the most likely outcome is. While I dont have a crystal ball, in addition to paying attention to eight pivotal eurozone events happening from now until July, Im also watching for four critical developments in the run-up to the second Greece election on June 17. Heres my watch list.
2012-05-30 The Eurozone Crisis: 8 Key Events to Watch by Russ Koesterich of iShares Blog
Be prepared for another volatile summer. From now until July, there are a number of pivotal events from votes to meetings that could help dictate Greece and the eurozones future, and will most certainly drive market sentiment. But because the outcome of many of these events is so hard to predict, I expect markets will remain especially volatile in the days leading up to these key dates. Among the 8 pivotal moments highlighted, key events include a May 31 Irish referendum on the Stability Treaty, and the June 17 Greek elections, among others.
2012-05-25 Going Defensive With Dividend Funds by Russ Koesterich of iShares Blog
With markets likely to remain volatile in the near term, investors should consider dividend paying stock funds as a defensive play.
2012-05-23 The Three-Part Case for Commodities by Russ Koesterich of iShares Blog
With both gold and broader commodity indices down significantly month to date, many investors are asking if they should lower or even remove their commodity exposure. I believe the answer is no. First, its useful to put the recent weakness in perspective. Both gold and a broad basket of commodities are down roughly 10% over the past three months. While the losses represent a significant correction, they are in line with the performance of equity markets over the same time period. Even more importantly, here are three reasons for maintaining a strategic exposure to commodities.
2012-05-22 The Achilles Heel of the US Economy by Russ Koesterich of iShares Blog
The Achilles Heel of the US economy may just be that entitlement programs havent kept pace with US demographics, a fact that has long-term implications for investors. According to a recent annual government report on entitlement programs, the Social Security trust fund is likely to run out of money in 2033, three years earlier than previously projected. Meanwhile, both Social Security and Medicare arent sustainable in the long term without structural changes.
2012-05-18 The Pros and Cons of Preferreds by Russ Koesterich of iShares Blog
Given the universal hunt for yield, many investors are asking me what I think of preferred stocks. I believe that this asset class certainly has a place in yield oriented portfolios, but I wouldnt overweight preferred equity funds at this time and would instead remain neutral. Why? While preferred funds are certainly providing a healthy, relatively high yield in a low yield environment, the extra yield comes with a lot of volatility. urrently, preferred funds are offering a yield similar to that of a high yield bond fund, but preferred funds are also offering about 50% more volatility.
2012-05-17 The Investing Implications of Price Creep by Russ Koesterich of iShares Blog
While double-digit inflation is extremely unlikely this year, the new core inflation figure shows that prices are slowly creeping up in the US. For investors, there are a couple of implications. 1.Recognize purchasing power erosion: Even if inflation stabilizes at current levels, over the long term 2.3% inflation would still cause prices to rise by 50%. 2. Consider equities and commodities: While uncertainty over Europe and Chinese growth are likely to keep volatility high this summer, investors should consider using near-term market weakness to add to long-term equity and commodity positions.
2012-05-16 Will a Grexit Come to Pass? by Russ Koesterich of iShares Blog
The Greek election provided further evidence that despite all of the accords, firewalls, and bailout funds, Europes economic future remains on a precipice. In a reflection of deepening economic malaise in Greece, the majority of the May 6th vote went to far left and right parties, few of which ran on a platform of fiscal austerity or loyalty to Europe. While the election certainly raised the odds of Greece eventually leaving the euro, its too soon to conclude that a Greek exit is imminent. Greeces fate now hinges on the results of a second election, expected to occur as early as mid-June.
2012-05-15 Inflation Fighters by Russ Koesterich of iShares Blog
Whether you agree with Russ that inflation isnt a short-term concern, or you fear the worst in the near future, preparing a portfolio for inflation is on many investors minds. Russ weighs in on how different asset classes measure up against inflation. TIPS provide an effective inflation hedge and having a benchmark allocation to this asset class is prudent, the many investors clamoring into TIPS are currently contributing to, and accepting, an average negative real yield across the entire TIPS curve. In addition, TIPS will not perform well if real yields rise along with rising interest rates.
2012-05-11 The US: Stuck in the Slow Lane How Long? by Russ Koesterich of iShares Blog
A slow growth world does not necessarily mean the death of equities or the absence of opportunities. It does, however, suggest that investors need to have realistic expectations for the US economy, and for most of the developed world. Slower growth, lower interest rates and lower multiples are arguably consequences of higher public debt. And this may be an issue were still contending with in two decades time.
2012-05-10 Sell in May: Volatility Isnt Going Away by Russ Koesterich of iShares Blog
According to the old adage Sell in May and go away, investors are supposed to cash out their stock market positions in May and then take the traditionally poorer performing summer months off. Its no wonder, then, that many investors are asking if its time to sell, a question all the more pertinent after last weeks losses. In my opinion, the answer is a qualified yes. I believe that investors should consider lightening up on certain positions and getting more defensive. But my belief is not based on the month of the year, but rather on current market volatility.
2012-05-08 European Election Round Up: Longer-Term Consensus? by Russ Koesterich of iShares Blog
Four countries, four sets of elections, same result: anyone but the incumbents. Over the last few days, voters in Germany, France, Greece and Italy have delivered a clear message to politicians: austerity has taken its toll. While the results certainly imply more near-term uncertainty, particularly in Greece, they also offer the possibility of a more balanced approach to the European quagmire.
2012-05-05 Has Tech Reached Its Top? by Russ Koesterich of iShares Blog
Since last fall, technology companies have been helping pull the broader market higher. The S&P 500 technology sector, of which Apple Inc. makes up a significant part, has gained roughly 20% year to date and is up approximately 37% from last summers low. Its no surprise, then, that many investors are wondering if the momentum will last. In my opinion, while the technology sector still looks compelling over the longer term, it may be time for some investors to pare back their positions in the sector.
2012-05-03 6 Reasons Why a Soft Landing in China Matters by Russ Koesterich of iShares Blog
World markets and financial media seem to react to every new data point about Chinas economy, whether its manufacturing reports or gross domestic product numbers. This market sensitivity isnt very surprising given how important China has become for the global economy. But it also means that it will be hard for the global recovery to continue without a soft landing in China.
2012-05-01 The Income Hunt: Opportunities Abroad by Russ Koesterich of iShares Blog
When it comes to fixed income portfolios, investors are often too reliant on domestic debt issues. However, as Russ explains, today there are a number of reasons why US investors should consider looking outside their own country particularly toward emerging markets for their fixed income needs.
2012-04-27 3 Signs That US Treasury Rates Will Rise by Russ Koesterich and Matt Tucker of iShares Blog
How long can the 30-year bull market for Treasuries be sustained? While a bond market meltdown isnt imminent, Russ and Matt outline the signs that investors can watch for that could signal the beginning of the end.
2012-04-24 A Risky Business by Russ Koesterich of iShares Blog
In todays low yield environment, fixed income investors face a stark choice: accept lower income or take on additional risk to generate incremental yield. In assessing these two options, investors must start with their own tolerance for risk and investment objectives. For those willing to take on additional risk, I continue to advocate reducing duration risk, for which investors are not being adequately compensated, and modestly increasing exposure to spread products. I currently see opportunities in Investment Grade US Corporate Debt and Emerging Market Bonds.
2012-04-23 Fewer Workers: A Drag on US Growth by Russ Koesterich of iShares Blog
The March non-farm payroll report left investors disappointed by the low level of job creation. Yet the number in the report that may prove the most relevant over the long term was largely ignored the proportion of the US population currently in the labor force, a number now at 63.8% and close to a thirty-year low. Over the long term, a countrys economic growth is determined by the rate of increase in the labor force and productivity growth. If fewer people are working growth slows. This is exactly what has happened over the past dozen or so years in the United States.
2012-04-18 Q2 Markets: Dont Expect Smooth Sailing by Russ Koesterich of iShares Blog
While valuations still appear reasonable, inflationary pressures remain well contained and the economy is stabilizing, Russ explains why he expects more market volatility in the second quarter and details how investors may want to position their portfolios as a result.
2012-04-17 Investor Question: Gold or Gold Miners? by Russ Koesterich of iShares Blog
The Fed may be the best friend gold investors ever had. The most important factor for gold is actually not inflation or the dollar, but rather the level of real interest rates. In fact, the relationship between gold and real rates is so critical that since 1990, the level of real rates explains roughly 60% of the annual performance of gold. Gold generally does best in an environment in which real rates are low to negative as this means no opportunity cost to holding gold. Since 2003 when gold began its long-term outperformance we have been in just such an environment.
2012-04-13 How Rising Rates Will Affect Stocks by Russ Koesterich of iShares Blog
While recent market weakness, and the accompanying bond market rally, has tempered fears of an imminent bond market meltdown, many equity investors are still concerned about the potential impact of rising rates on US and global stocks. This year, I expect long-term rates to rise modestly as they appear too low. Assuming the US economy continues to stabilize over the course of the year, the yield on the 10-year Treasury will likely rise to around the 3% level, . However, this probable grind higher is not a major threat to US and global stocks this year for two reasons.
2012-04-12 Jobs Data a Reminder of the Slow, Fitful US Recovery by Russ Koesterich of iShares Blog
While last Fridays disappointing monthly jobs report doesnt herald the end of the US recovery, its a reminder of the recoverys fragility and that improvement in the US economy will most likely continue to be slow and characterized by fits and starts. When you view the jobs data in a context of longer than one month, there is evidence that the US labor market has improved since last year. However, its improving from a very low base at an agonizingly slow pace. There is also some evidence that the labor market has structural problems that may prove to be a drag on growth for some time.
2012-04-11 Time to Exit Emerging Markets? by Russ Koesterich of iShares Blog
Is it time to sell emerging market equities? Thats what many investors are wondering given that emerging market stocks are up significantly since fall lows and have modestly outperformed developed markets year to date. Despite emerging markets strong recent performance, I believe there are two major reasons why investors should still consider overweighting select countries relative to their weight in the MSCI ACWI benchmark. Cheap Valuations and Falling Inflation.
2012-04-06 A Headwind for the US Economy: Tax Uncertainty by Russ Koesterich of iShares Blog
If 2013 tax hikes seem set to hit on schedule, I would be more bearish on the US economy and US equities. In such a scenario, the US economy would likely face $500 billion to $600 billion in fiscal drag a significant damper on economic growth and consumption from higher taxes. And lingering uncertainty over taxes into 2013 would also be a negative for the US economy because of the potential harm it could cause to US confidence and business spending.
2012-04-05 Shifting Focus: Behind Country Valuations Today by Russ Koesterich of iShares Blog
As the European financial crisis raged last fall, investors were closely monitoring metrics like credit default swaps and yields on Italian bonds to determine where to place their country bets. But 2012 has brought some stability to the eurozone and with it weve noticed a shift in the types of indicators that investors should be tracking when it comes to determining country valuations metrics that show economic growth.
2012-04-03 Proceed with Caution in the Hunt for High Yield by Russ Koesterich of iShares Blog
Given high yield credits recent rally and surge of inflows, Im now getting a lot of questions about whether or not the asset class still looks appealing. While high yield provides an attractive pickup in yield and Im maintaining my neutral view of the sector, I believe the easy money has probably already been made and the asset class no longer looks cheap. As such, over high yield, I prefer investment grade credit and municipals.
2012-03-29 Stocks: Still a Bargain by Russ Koesterich of iShares Blog
With global stocks up approximately 25% from their fall low and many market watchers endorsing equities in recent weeks, its hardly surprising that investors are wondering if stocks are still a good bargain. While some measures of sentiment notably abnormally low volatility levels could be interpreted as flashing yellow caution signs, valuations and fundamentals still favor global stocks over the long term. Currently, equities look reasonably priced. Developed market equities are trading at around 14.5x trailing earnings, while large emerging markets are trading at roughly 12x earnings.
2012-03-28 How to Access the EM Consumer? Think Small by Russ Koesterich of iShares Blog
Investors who are looking to gain exposure to emerging market domestic consumption may want to consider the small cap segment of emerging markets. I expect emerging markets to outperform based on low relative valuations, falling inflation and stronger growth. Longer term, emerging market stocks are likely to benefit from falling volatility and rising developed market volatility. However, if youre specifically trying to capture, and profit from, the secular rise of emerging market middle class consumers, its worth considering that small cap stocks provide a more targeted exposure.
2012-03-27 Housing Boom? Not Yet by Russ Koesterich of iShares Blog
Despite some recent signs the US housing market may be stabilizing, Russ explains why he doesnt expect a strong housing rebound in the near term and doesnt advocate aggressively leveraging to housing-related investments.
2012-03-23 The Republican Budget Proposal: Reading the Tea Leaves by Russ Koesterich of iShares Blog
While budget plans from Republicans and Democrats are generally at odds, the differences between the parties current proposals are particularly stark and provide evidence for Russ forecast for the global market this year: Two quarters of sun, followed by a chance of severe thunderstorms in the fourth quarter.
2012-03-22 The Case for Chinese Stocks by Russ Koesterich of iShares Blog
Chinas recent lowering of its growth target made some investors nervous that the country may be in for a period of sluggish growth. Russ, however, believes that a hard landing can be avoided, and he continues to advocate overweighting Chinese equities for three reasons.
2012-03-21 US Treasuries: This is the End? by Russ Koesterich of iShares Blog
Last week, the US Treasury market suffered its worst losing streak since 2006. This rapid rise in yields has prompted investors to wonder whether the 30 year rally in bonds is finally coming to an end, and if so how high will rates rise? The answer may surprise you.
2012-03-15 Where to Look for Dividends? Try Outside the US by Russ Koesterich of iShares Blog
With the dividend corner of the US equity market now crowded and expensive, Russ gives three reasons why investors might want to consider looking abroad for dividend income. More Reasonable Valuations: Outside of the US, dividend paying stocks still appear cheap and are trading at a significant discount to the broader equity market. More Attractive Yields: Non-US dividend companies are offering more enticing yields. Outperformance in a Slow Growth Environment: high dividend paying stocks tend to outperform during periods of slow growth like the one were experiencing this year.
2012-03-13 Another Country in Europe to Avoid by Russ Koesterich of iShares Blog
Russ recently advocated that investors avoid Spain and Italy, markets that are cheap for a reason. Now, hes adding the United Kingdom to the list of European markets to consider underweighting -- a country that has its own issues separate from those of the euro zone.
2012-03-12 The Current State of Munis by Russ Koesterich (Article)
With the much anticipated “muni meltdown” never coming to pass in 2011, investors are wondering what to think about municipal bonds going into the new year. Russ Koesterich explains the recent selloff and provides some new context for this important asset class.
2012-03-09 Why Warren Buffett is Wrong About Gold by Russ Koesterich of iShares Blog
One of the more vocal and visible proponents of the anti-gold view is Warren Buffett, who recently reiterated his long held view that gold does not belong in an investment portfolio as it produces no income and has no intrinsic value. With all due respect to Mr. Buffett, this argument ignores two crucial facts: gold helps to diversify a portfolio and, if only by an historical fluke, it is a recognized store of value.
2012-03-08 Inflation Inferno? Maybe in 2013 and Beyond by Russ Koesterich of iShares Blog
In a controversial new paper, a staff economist at the Federal Reserve Bank of St. Louis warns that conditions are ripe for a spike in inflation. While Russ shares many of the economists concerns, he explains why its too soon to make significant changes to a portfolio based on inflation fears.
2012-03-07 Q&A with Russ Koesterich: What Obamas Budget Proposal Means for Dividend Investing by Russ Koesterich of iShares Blog
President Obamas 2013 budget proposal includes a significant hike in the dividend tax rate. Russ explains how likely this proposal is to pass and what it would mean for the dividend paying stocks investors who have embraced in their quest for yield.
2012-02-29 A Tailwind for Gold? Low Rates by Russ Koesterich of iShares Blog
In recent months, the Fed and the ECB have been lowering-or maintaining low-interest rates in an effort to support growth. One unintended beneficiary of the aggressive easing by the developed worlds central banks: Gold. Historically, the most important driver of gold returns has not been inflation or the dollar, but rather the level of real interest rates. In the past, environments with interest rates at or below the level of inflation have been very supportive of commodities, and particularly gold. Todays rate environment fits this bill and so should that of the near future.
2012-02-28 The Outlook for Oil by Russ Koesterich of iShares Blog
Are we headed for another oil shock, and, if so, what are the investment implications? Russ tackles these questions, explaining what could cause an oil spike, why he believes crude prices are likely to stay elevated in the near term and what this means for his view of global energy companies.
2012-02-24 The Outlook for the Overvalued Euro by Russ Koesterich of iShares Blog
Now that a second Greek bailout deal has been reached, investors are asking whether Greece will remain in the euro bloc and how the euro will likely perform going forward. Russ answers these questions, explaining why the euro currently appears overvalued and how a weaker currency could be good for Germany.
2012-02-22 Buyer Beware When it Comes to US Retailers by Russ Koesterich of iShares Blog
While the US labor market has improved recently, it has yet to lead to any real acceleration in US consumption. In fact, last week, US retail sales came in below expectations for a second month in a row, and US consumption growth has held relatively steady at a 2% annualized rate for the past 10 quarters. There are four reasons why consumption is still so far below trend despite the improving labor market. 1. Keeping the improvement in context: The job market is actually improving from a very low base. 2. A Smaller Work Force. 3. Decelerating Wages and 4. Household Debt.
2012-02-18 Payroll Tax Cut Deal: The Good News and the Bad News by Russ Koesterich of iShares Blog
The good news is that extensions of the payroll tax holiday and unemployment benefits will remove a near-term risk for the US and global economies. But the bad news is that significant economic risks remain.
2012-02-16 Mega Caps: Where the Profits Are by Russ Koesterich of iShares Blog
Despite mega caps recent outperformance, the stocks remain cheap on both a relative and absolute basis. Heres more evidence to add to the case for mega caps. The current discount on mega-cap stocks is particularly hard to justify given that these large companies continue to be extremely profitable despite todays tepid economic environment. In fact, the return on equity (ROE) for the S&P 100 index is slightly below 29%, the highest level since 2000 and well above the long-term average of 23%.
2012-02-14 3 Reasons to Underweight South Africa by Russ Koesterich of iShares Blog
In my opinion, investors should consider minimizing their exposure to emerging markets in Europe, the Middle East and Africa, otherwise known as EMEA. The big reason: emerging markets in EMEA generally have close economic ties to the euro zone, which as we all know is going through a rough spot and is likely to experience at least a mild recession this year. Drilling down to the stocks of specific emerging market countries within EMEA, Im particularly focused on South Africa as its the largest country in the MSCI Emerging Markets EMEA index.
2012-02-10 Current Market Volatility? Too Quiet by Russ Koesterich of iShares Blog
In horror movies, the time to worry is when things become eerily quiet. Last Friday, the Chicago Board Options Exchange Volatility Index (VIX), hit its lowest level since last July. This is the financial equivalent of eerily quiet. Assuming that volatility is set to rise, how should investors adjust their portfolios? First, remember that its the change in volatility that tends to impact asset prices. Investors would want to modestly lower their weight to market segments that are very sensitive to changes in volatility and raise their weight to less sensitive or lower beta instruments.
2012-02-07 Where to Find Value in Emerging Asia by Russ Koesterich of iShares Blog
Im updating my views on some of the emerging market countries in Asia. While Im upgrading Chinese equities from neutral to overweight, Im downgrading South Korean and Indian stocks from neutral to underweight. Starting with China and South Korea the two countries are both highly exposed to global growth, but China currently appears to be the better positioned and is likely to hold up much better. To be sure, South Korean equities are also cheap compared to other emerging markets. Im downgrading India in response to the countrys recent surge in valuations and persistently high inflation.
2012-02-03 The Case Against Long-Term Treasuries by Russ Koesterich of iShares Blog
Just last week, the yield on 10-year Treasury notes slid in response to the Federal Reserves announcement that interest rates would remain low through 2014, and yields dropped further early this week on concerns about Europe. With the yield on 10-year notes now hovering around 2% and core inflation at its highest level in over three years, the spread between the 10-year Treasury yield and core inflation is currently at its most negative since 1980.
2012-02-02 Election Watch: What Romney Means for the Economy by Russ Koesterich of iShares Blog
In the near term, Romneys strong showing in Florida isnt likely to have much of an impact on the US economy. Looking forward to this fall, however, Russ explains how a Romney win could have a significant impact on the US economic outlook.
2012-01-31 Back To The Gold Standard -- and the Great Depression by Russ Koesterich (Article)
One of the central tenants of Ron Paul's presidential campaign is a return to the gold standard. In this video, Russ Koesterich, iShares Global Chief Investment Strategist, explains what it would mean for the US and global economies if Ron Paul's wish was granted and the US dollar was once again tied to gold.
2012-01-27 Dissecting Todays Bull Market by Russ Koesterich of iShares Blog
So whats a tactical investing idea for the current cyclical bull market? Well, lets look at the investment implications of the Feds announcement this week. First, it suggests that nominal rates and real rates will stay low for a long time. This further buttresses the case for gold. Second, if US interest rates are going to be anchored at zero for an extended period, people are going to need to take some risk in one form or another to generate a decent return.
2012-01-26 Big State Doesnt Mean Bad Muni by Russ Koesterich of iShares Blog
With their budget woes frequently dominating headlines, California and New York are regularly cited as poster children for bad state finances, and investors often avoid these states municipal bonds as a result. But these two states may not be in as bad shape as many people believe. My team recently performed a basic examination of the financial health of the 50 states. We looked at three metrics for each state: Revenue-to-interest payments, state debt levels to state revenue and the funding of pension costs.
2012-01-26 The Price of a Good Nights Sleep by Russ Koesterich of iShares Blog
Even with the recent market rally, investors are still placing a significant premium on those assets perceived as safe. Case in point: the US Treasury market. By one measure-real yields measured against core inflation long-dated Treasuries are offering the worst returns in over 30 years. The flip side of this trade is a persistent aversion to assets perceived to be the most risky, particularly Europe. Even in the more stable, northern parts many markets are trading at 8 times earnings, with dividend yields at 4% to 5%. In a low yield world, this strikes us as a long-term opportunity.
2012-01-20 The Deleveraging Myth Part 2: Behind Consumer Deleveraging by Russ Koesterich of iShares Blog
The rise in transfer payments can, and probably should, continue in the near term as wage growth is still anemic. However, if previous credit bubbles are any guide, it will take a long time for the labor market to rebound, meaning the consumer is likely to remain dependent on help from the government in the long term. While this will allow consumer deleveraging to continue, it comes at the expense of more government debt and a net effect of more US non-financial debt.
2012-01-19 The Continuing Case for Mega Caps by Russ Koesterich of iShares Blog
Last year, mega-cap companies were cheaper and more profitable than their smaller counterparts. Thats why I continuously advocated for mega-cap, quality stocks as a defensive play amid last years market volatility, economic shocks and political paralysis. Ultimately, investing in mega caps in 2011 was a good call. Now, after last years flight to safety, many investors are asking if mega-cap stocks are still a bargain. The answer is a resounding yes. Despite outperforming in 2011, mega caps are still trading at a historically high discount to other segments of the market.
2012-01-17 Video: A Portfolio (or Two) for a Binary World by Russ Koesterich, CFA (Article)
Will the global economy continue to muddle along, stuck in this slow growth environment? Or is it headed for a crisis? How is it possible to position an investment portfolio for either scenario? Russ Koesterich, iShares Global Chief Investment Strategist, explains in this video why in these binary times, it might make sense for investors to consider having two portfolios.
2012-01-17 The Great Deleveraging Myth by Russ Koesterich of iShares Blog
Theres been talk in the blogosphere lately aboutwhether or not developed economies are deleveraging, i.e. winding down their debt. Some recent posts, under headlines such as The Age Of Consumer Deleveraging Is Over and Deleveraging is So 2011, have argued that at least in the United States, consumer deleveraging appears to be a thing of the past. My take, however, is that in many sectors of the US economy, deleveraging hasnt happened at all. In fact, the notion that the United States is deleveraging is mostly a myth.
2012-01-12 The Other Presidential Election to Watch by Russ Koesterich of iShares Blog
The US presidential election isnt the only race for top office this year worth closely watching. Right now, my attention is focused on an upcoming presidential election on the other side of the globe. On January 14, Taiwanese voters will vote for their countrys next president. This election is particularly important for investors. Though many factors drive stock prices, a win for incumbent President Ma Ying-jeou would be supportive of Taiwanese equities. A loss, on the other hand, could be a tailwind for the market.
2012-01-11 From Divergence to Nemesis, More 2012 Economic Scenarios by Russ Koesterich of iShares Blog
A new outlook from the BlackRock Investment Institute offers five economic scenarios for 2012. Russ describes how this outlook lines up with his expectations for the year.
2012-01-09 A Portfolio (or Two) for a Binary World by Russ Koesterich (Article)
Will the global economy continue to muddle along, stuck in this slow growth environment? Or is it headed for a crisis? How is it possible to position an investment portfolio for either scenario? Russ Koesterich, iShares Global Chief Investment Strategist, explains in this video why in these binary times, it might make sense for investors to consider having two portfolios.
2012-01-05 3 Economic Scenarios for 2012 by Russ Koesterich of iShares Blog
Russ believes that one of three economic scenarios will likely play out next year: the Great Idle will continue, the global economy will slip into a recession or global growth will accelerate. The most likely scenario is that The Great Idle continues. A severe global recession in 2012 is a second possible scenario. In fact, Im placing higher odds on another global recession than I did last year. Theres a tiny chance of a third scenario. In this scenario, emerging markets would resume stellar growth and the developed world would revert back its long-term average growth.
2012-01-04 What to Watch for in Early 2012 by Russ Koesterich of iShares Blog
As 2012 gets underway, investors should pay close attention to two particular unresolved economic issues: High Italian bond yields and the ongoing drama of the payroll tax holiday. These two pieces of unfinished business are likely to dominate headlines and influence markets during the first few months of this year. They both also could send the global economy back into a recession if theyre not solved adequately. What needs to happen for these issues to be resolved? Heres a quick look at some signs investors should watch for.
2011-12-30 A Look Back at 2011s Calls by Russ Koesterich of iShares Blog
Last December, Russ shared his economic forecast for 2011, along with a series of investment calls. Nearly every Monday since then, he has highlighted certain asset classes and market sectors in his weekly call posts. So, how did his calls perform? Read more to find out.
2011-12-28 Backing Brazil and Avoiding Indian Inflation by Russ Koesterich (Article)
In his latest video installment, iShares Chief Investment Strategist Russ Koesterich takes investors to Latin America and to explain why Brazil is his favorite spot in the region. But for investors who might be interested in India, Russ has some words of caution.
2011-12-28 A Top Sector Pick for 2012 by Russ Koesterich (Article)
With 2011 winding down, it is time to think about positioning your portfolio for the New Year. In this video, Russ Koesterich, iShares Global Chief Investment Strategist, explains why energy is his favorite sector for 2012. He also gives three reasons why investors should approach the utilities sector with caution.
2011-12-28 Where Falling Inflation Means Rising Valuations by Russ Koesterich of iShares Blog
Emerging market inflation should decelerate further in 2012 thanks to a combination of continuing slower global growth and the lagged impact of monetary tightening. With the outlook for emerging market inflation improving, my team recently ran an analysis to determine which developing countries are likely to see their valuations benefit the most from falling inflation. Here is the list, with each country ranked in order of how much they should benefit. 1. Brazil 2. India 3. Egypt 4. South Africa 5. Russia 6. Turkey.
2011-12-16 Whats Driving Markets These Days? Not Economic Data by Russ Koesterich of iShares Blog
Despite generally better-than-expected economic data and a good earnings season, stocks remain stuck in the same trading range theyve been in since the summer. The reason: Political developments continue to trump economic ones. For much of the year investors, including myself, have been surprised and mystified at how political events have unfolded in the United States and Europe. Policy decisions have become harder to predict and are being motivated by domestic political considerations. And increasingly, they are driving how markets perform.
2011-12-15 The European Overhang and Odds of a Meltdown by Russ Koesterich of iShares Blog
Earlier this week, I noted that very elevated Italian and Spanish bond yields remaina short-term risk for both the European and global economies.Several other major European-related risks also continue to threaten markets.1)In the short-term, a key risk remains European banks. While bank funding needs have been addressed by European leaders, capital adequacy still is an issue. 2)A broader risk remains in the form of the interplay between economic policy and domestic politics. In efforts to solve Europes debt problems, domestic political considerations have too often trumped economics.
2011-12-07 4 Portfolio Moves for a Long-Term European Debt Crisis by Russ Koesterich of iShares Blog
In recent weeks, governments around the world have stepped up efforts to solve the European debt crisis. While Russ believes European leaders will address the outstanding issues in time to avoid a sovereign debt collapse, here are four investing ideas to consider if you expect the crisis to drag on. 1. Within your international equity exposure, overweight CASSH countries. 2. Within your international equity exposure, overweight emerging markets outside of Europe. 3.) Overweight safe-haven assets. And 4.) Within fixed income, overweight investment grade and munis.
2011-12-02 The Cost of (Super Committee) Failure by Russ Koesterich of iShares Blog
With the failure of the Congressional super committee, the US economy is now poised to experience a significant slowdown in 2013. Russ explains that given that in 2013 the US economy will very likely still be struggling with the impact of consumer deleveraging and a moribund labor market, the resultant fiscal drag would increase the probability that the United States could tip back into a recession.
2011-11-29 The Euro-Recession? by Russ Koesterich of iShares Blog
Stocks and the euro rose as efforts heated up to help ease Europes debt crisis. Germany and France increased a drive for coercive powers to reject euro zone members budgets that breach EU rules, while a rout of European debt eased on hopes of outside help for Italy and Spain. Despite this progress, a general erosion in confidence coupled with an ongoing deleveraging by the European banks are raising the odds that Europe will experience at least a mild downturn in 2012. For many investors one to two quarters of negative growth now represents the best case scenario for Europe.
2011-11-29 Assessing Bank Strength Down Under by Russ Koesterich of iShares Blog
Australias strong banking sector is one reason the country is expected to grow faster than larger developed markets. In the 1990s, the Australian government adopted whats called the Four Pillars policy, which prohibits the four big Australian banks from merging or acquiring each other. In this post Russ explains how the countrys Four Pillars policy has helped fuel Aussie banks strength.
2011-11-26 3 Reasons Europe is Failing to Act by Russ Koesterich of iShares Blog
Its not just US politicians who are failing to adequately address sovereign debt problems. European politicians and policy makers are too. Russ provides three reasons why. 1.Reforms alone arent enough, 2.A lack of firepower and 3.The savior hasnt stepped up. What does this mean for investors? If a politically acceptable solution is not found, Europe risks turning a liquidity problem for smaller peripheral countries into a solvency problem that infects most of the continent. As the European failure to act continues, volatility is likely to remain high in the near term.
2011-11-23 The Case for CASSH by Russ Koesterich of iShares Blog
Not all developed markets are stuck in a slow-growth environment. Certain smaller developed countries what Russ is calling the CASSH countries appear fundamentally stronger than their larger counterparts. Five countries (Canada, Australia, Singapore, Switzerland and Hong Kong) are likely to hold up much better in the long term than their larger neighbors.
2011-11-22 Crafting a Country Call by Russ Koesterich of iShares Blog
For nearly a year, Russ has made weekly investment calls about markets across the globe. Heres a quick look at the macroeconomic approach behind his country views and a summary of where his calls now stand. Generally underweight in countries where prevailing macroeconomic conditions cannot explain high or expensive valuations, and he is typically overweight in countries where prevailing macroeconomic conditions cannot explain low or inexpensive valuations.
2011-11-22 A Failure to Act by Russ Koesterich of iShares Blog
The bipartisan Congressional super committee announced on Monday that it would not be able toreach a deficit-reduction dealin time for its deadline this week. The committees failure will not unleash a near-term economic catastrophe, but it does have four important implications for the US economy: 1. Lower Investor Confidence 2. A Stalled Economy in 2012 3. Fiscal Drag in 2013 and 4. Another Potential Downgrade.
2011-11-18 Getting Granular with Emerging Markets by Russ Koesterich of iShares Blog
Given todays volatile world, it may be time for investors to adopt a more nuanced approach to investing in emerging markets. Rather than using the traditional frameworks such as emerging markets versus developed markets Im advocating that investors consider creating their international allocation on a country or regional basis. Here are two reasons why.
2011-11-17 A Risk Lurking in Octobers Retail Sales by Russ Koesterich of iShares Blog
October retail sales are the latest sign that the US economy is likely to avoid another recession and is experiencing what Im calling The Great Idle. But a look behind the retail numbers also reveals a major risk facing the US economy. With unemployment still high and wages growing so slowly that hourly workers are losing purchasing power at the fastest rate in 20 years, you may be wondering where consumers are getting the money to buy new cars or the latest iPhone. It turns out that surprisingly brisk retail spending is being supported by lower savings and by help from the government.
2011-11-15 Why US Equities Look Expensive, but Japan Does Not by Russ Koesterich of iShares Blog
Im downgrading my view of US equities to neutral from overweight. Since I first initiated an overweight on US stocks last December, large cap US equities have outperformed global equities by roughly 5%. The US has recently become marginally more expensive relative to other countries at the same time that its growth prospects have worsened. Im upgrading my view of Japanese stocks to overweight from neutral given Japans low valuations, better growth prospects and stable risk. This is a value call. Japan currently trades at under book value, down from 1.11 times book value 6 months ago.
2011-11-10 Tipping into Recession? Not Yet by Russ Koesterich of iShares Blog
If you think this is a bad economy, you havent seen anything yet. Thats what the Economic Cycle Research Institute said on Monday when it warned investors that the US economy is tipping into a recession. But heres why Russ does not agree. As ECRI recently pointed out, recessions can begin in periods of positive GDP growth. Im closely watching a big uncertainty looming over the global economy-whether Europe will be able to resolve its crisis. If Greece does end up defaulting on its debt in a disorderly fashion, then the US economy could end up very well tipping into a recession.
2011-11-05 Welcome to the Great Idle by Russ Koesterich of iShares Blog
First, there was the Great Depression. Then, there was the Great Recession. Now, the US economy is stuck idling along in neutral, temporarily unable to move beyond sluggish growth, high unemployment and a general lack of confidence.
2011-11-04 Corporate Bonds: Figuring out a Fair Price by Russ Koesterich of iShares Blog
Q: How can you determine if corporate bonds are cheap or expensive? A: By looking at the spreads to Treasury bonds, relative to the state of the economy. Why you should care: Corporate bonds look reasonably priced compared with Treasuries. One way to think about corporate bond valuations is to consider thespread. Investors in corporate bonds are assuming credit risk the risk that the issuer wont repay the principal or make good on an interest payment. Investors are arguably not subject to that risk with a Treasury bond (for all its troubles, the US government has never defaulted).
2011-10-28 The Fatal Flaw of Deficit Reduction Efforts by Russ Koesterich of iShares Blog
Dont expect the Congressional supper committees plan to resolve the United States fiscal problems. Why? The committee is likely working off a federal government budget that has wildly optimistic growth assumptions.
2011-10-26 Who Benefits from Eurozone Progress? Hint: Look North, Not South by Russ Koesterich of iShares Blog
Many investors are asking this question as speculation increases that policy makers may be moving closer to containing the crisis. While you might assume the answer would be Italy, Spain or Greece, I have a different take. In short, look to the north, not the south: Perhaps somewhat surprisingly, countries in Northern Europe not directly involved in the sovereign debt crisis will likely benefit disproportionately from any credible progress.
2011-10-20 Why Moving to Cash May be a Mistake by Russ Koesterich of iShares Blog
ecently, weve all had to contend with political inertia that has bordered on dysfunction on both sides of the Atlantic. In times like these, its not surprising that more and more investors are moving into cash. But that move may be a mistake. To be sure, if there is a worsening crisis in Europe or we have another severe recession, investors will probably be better off out of the market for a period of time. But unless you feel confident that you can predict these events, its worth considering three reasons to keep some equity exposure.
2011-10-20 Making the (Credit) Grade in Emerging Markets by Russ Koesterich of iShares Blog
While emerging markets are not without their share of macroeconomic problems, they are not experiencing the same sovereign debt problems as their developed market neighbors. In fact, the worlds sovereign debt problems are centered in developed markets such as Europe, the United States and Japan. Ive already mentioned this as a fact supporting emerging market equities. Its even more supportive of emerging market fixed income.
2011-10-13 The US Recoverys Catch-22 by Russ Koesterich of iShares Blog
With the consumer sector unlikely to fuel a US recovery, that leaves the corporate sector as the engine of growth. At first glance, this would seem to be a safe bet. As I mentioned in early September,the silver lining of todays slow growth environmentcontinues to be the strong financial position of many US companies. But heres the catch: The domestic corporate sector relies on the US consumer. To continue growing over the next few years, companies need consumer spending to pick up. This leads us to the great economic Catch-22 of our time, So, where does that leave the US recovery?
2011-10-07 Despite Skeptics, Can Gold Continue to Glimmer? by Russ Koesterich of iShares Blog
In recent weeks, a number of market watchers and media headlines have declared that the gold bubble is finally bursting and the gold rally is over. I disagree. First, Ive never believed that gold was in a bubble. Second, I believe that prices for the precious metal are likely to remain high for the foreseeable future. As I pointed out in a recent post, Why Gold Prices Are So High, there are three long-term factors supporting gold. 1) The negative real interest rate. 2) Gold tends to do best when fiat currencies depreciate. And 3) Uncertainty over the endgame of the US deficit.
2011-10-06 Transfer Payments and the Risk of a Double Dip by Russ Koesterich of iShares Blog
In August, US personal income fell for the first time in nearly two years. One reason for the drop: A slowdown in transfer payments. Transfer payments are government payments to individuals and include everything from Social Security to unemployment benefits. This chart a stark illustration of just how dependent disposal income has become on such payments. Thanks to generous growth in transfer payments in the past 50 years, the payments now account for 20% of disposable income. But transfer payments have been slowing in recent months as fiscal stimulus from the federal government wanes.
2011-09-22 Jobless Claims, Leading Indicators Could Show US Economy is Not Contracting by Russ Koesterich of iShares Blog
Of all the economic reports coming out this week, Im most closely watching for the latest US weekly jobless claim numbers and the new leading indicators data, due out Thursday. Both will give further confirmation on the near-term state of the economy. As Ive mentioned before, I expect that the US economy is most likely going to experience an anemic expansion, rather than another recession. Recent economic reports have so far confirmed my view. I believe the new data this week will similarly show that the while the US economic recovery has stalled, the economy is not contracting.
2011-09-16 Latest Data Points to Anemic Expansion, Not a Recession by Russ Koesterich of iShares Blog
Some market watchers are interpreting the fact that US consumer confidence remained extremely low last week as a sign that the chances of a sustained recovery have diminished. In my opinion, however, theyre focusing on the wrong numbers among the slew of economic data released Thursday. The right numbers to focus on: new figures from the Federal Reserve that confirm that while economic activity is stalling, we are not yet seeing credible evidence of a double dip.
2011-09-12 Whats Missing From Obamas Plan by Russ Koesterich of iShares Blog
In a speech last Thursday evening, President Obama outlined his American Jobs Act, a $447 billion package of tax cuts and government spending he hopes will help stimulate the slowing economy. It calls for reduced payroll taxes, extended unemployment benefits and increased spending on infrastructure to help put people back to work. Without passage, I believe the US will suffer significant fiscal drag in 2012 and the economy will face more headwinds. However, while the proposal could spur some growth, it does nothing to fix the longer-term fiscal problems facing the country.
2011-09-09 Brazil and Chile | One for Now, One to Watch by Russ Koesterich of iShares Blog
Earlier this month, as part of my changed view of emerging markets. I initiated an overweight view of Brazil and noted that I am paying close attention to Chile. As promised, here are more of my thoughts regarding these two emerging market countries.There are a number of reasons why I like Brazil. First, from a valuation standpoint, Brazil looks attractive relative to both its own history and to other MSCI ACWI countries. I am not yet establishing an overweight view of countries in Latin America beyond Brazil, but I am watching Chile closely.
2011-09-08 The Transfer Payment Paradox by Russ Koesterich of iShares Blog
You dont have to be a fan of profligate government spending to recognize the enormous paradox the United States faces in getting its economic and fiscal houses in order. The US economy is driven largely by consumptionroughly 70% of GDP comes from personal consumption. A large and growing percentage of that consumption is dependent on federal transfer paymentsdirect government payments to individuals. Yet as the US tries to get its deficit under control, these payments could be cut. That in turn could have a significant impact on disposable income and economic growth.
2011-09-06 A headwind blows: Septembers seasonal stock weakness by Russ Koesterich of iShares Blog
In recent days, a number of market watchers have issued warnings about economic data and events that could roil markets this September. Investors might also want to consider an additional headwind: The seasonal pattern of equity market weakness in September. While most easy-to-find seasonal patterns fall apart when subjected to a bit of scrutiny, this seasonal pattern does appear to be both statistically significant and fundamentally justified. Most academics attribute the September weakness trend to a combination of tax-loss selling and window dressing ahead of the fiscal-year end.
2011-09-01 Slow growths silver lining: Corporate Profit Margins by Russ Koesterich of iShares Blog
Despite economic weakness, one sector of the economy continues to perform well: Corporations. Today, corporate profit margins are near record highs. But as concerns of a double-dip recession persist, many market watchers are wondering how much longer high profit margins can last. Answers to this question often focus solely on expectations for rising input prices. But I agree with the major conclusion of a new BlackRock Investment Institute paper-profit margin sustainability is more related to overall economic activity than it is to input costs alone.
2011-08-31 Ahead of the Numbers: ISM to give an early read on fallout from market volatility by Russ Koesterich of iShares Blog
Of all the economic numbers coming out this week theISM is the most important, in my opinion. First, its a good leading indicator of economic activity in general. The reports new order component, in particular, tends to be highly correlated with the next quarters GDP and is the most relevant number for predicting future economic growth. Second, the report is not subject to revisions, meaning what you see in the initial report is what you get. Finally, the report is extremely timely. Its one of the first snapshots well get on how the economy reacted to market volatility in August.
2011-08-30 Brazil and Chile | One for Now, One to Watch by Russ Koesterich of iShares Blog
Brazil looks attractive relative to both its own history and to other MSCI ACWI countries. The MSCI Brazil index is currently trading at 1.4x book value, versus its average of 2.1x book value over the past five years. In addition, from September 2008 to July 2009, the OECD composite leading indicator for Brazil was lower than it is today; yet the Brazilian market appears cheaper today than it did during that period on average. While Chile is starting to look interesting and we currently hold a neutral view of it, there is no need to rush in.
2011-08-25 Double Dip? Not so quick. by Russ Koesterich of iShares Blog
In recent days, market watchers from Bill Gross to Morgan Stanley have warned of the high possibility of a double dip recession for reasons ranging from more regulation and policy errors, to slowing consumption, weak economic data and the likelihood of further fiscal tightening. While I do believe that the odds of a double dip have risen since the S&P downgrade of US debt, I still think the most likely outcome is a sluggish recovery, not another recession. Whats my evidence? Leading indicators and retail sales data in the US and abroad.
2011-08-18 Where the Debt Crisis Could Spread by Russ Koesterich of iShares Blog
Investors are facing an unprecedented situation. Virtually all the major advanced economies the US, Japan and Europe have simultaneously undergone a significant fiscal deterioration, thanks to the after-effects of the financial crisis and worsening demographics. In addition, investors are wrestling with the implications of the recent US downgrade by S&P, as well as a slowing economy. Markets are rattled and many are wondering: what is the new riskless asset? A new index called the BlackRock Sovereign Risk Index provides just such a framework.
2011-08-17 Emerging Markets: The New Defensives? by Russ Koesterich of iShares Blog
Traditionally, investors looking for more defensive country-specific exposure would have opted for equities of developed world countries, while the stocks of emerging market countries would have been considered more risky options. However, lately many emerging market countries have actually become more attractive places to invest than parts of the developed world. Why are some emerging markets now more attractive? One reason is that certain countries within the developed world are at the epicenter of the recent global sovereign debt crisis.
2011-08-16 Equities, Mega Caps, Germany & More by Russ Koesterich of iShares Blog
Given last weeks extraordinary volatility, my call this week focuses on the overall market today. Essentially, I still believe the odds favor slow but positive growth; equities look inexpensive; and volatility appears too high. While I would continue to expect subpar growth, leading indicators arent suggesting that were heading back into a recession. For instance, in the year leading up to the 2008 recession, leading economic indicators fell or were flat in 11 out of 12 months. In contrast, leading indicators have risen in 11 out of 12 months, including the most recent.
2011-08-12 Too Much Volatility by Russ Koesterich of iShares Blog
While I think that market volatility will be higher in the second half of the year, the current level looks too high to me. In fact, I think that the panic is overdone unless you believe were headed back into another banking crisis or severe recession, both of which I would argue are unlikely. Back in May, when the VIX Index otherwise known as the fear gauge was trading at around 17.50, I highlighted that it looked too low. Now, according to my latest analysis, volatility levels in the 40-plus range are way out of line compared to where leading indicators suggest they should be.
2011-08-09 What the Downgrade Means for Investors by Russ Koesterich of iShares Blog
The downgrade simply reaffirms what everyone already knew. The US fiscal situation has deteriorated rapidly since 2008. More troubling, it also reiterates that the current structure of the large US entitlement programs and the narrow nature of the US tax base mean that after a brief respite, deficits will likely get much worse in the latter part of the decade. While last weeks bi-partisan deal to raise the debt ceiling alleviated the near-term pressure, the deal explicitly did not address entitlement programs and taxes, the longer-term more troubling challenges for the US fiscal situation.
2011-08-05 Are We Heading Back to Recession? by Russ Koesterich of iShares Blog
With the inventory build no longer driving the economy, growth is now reflecting real end-user demand. Unfortunately there isnt much of it. Personal consumption is by far the largest component of the economy, accounting for roughly 70% of economic activity. As everyone is well aware, the consumer has been on strike for much of the past three years. Consumers can spend from income, accumulated wealth or borrowing. For much of the previous decade, consumers were able to compensate for the lack of real income gains. Unfortunately, those factors cannot be relied on today.
2011-08-04 What the Debt Deal Means for Investors by Russ Koesterich of iShares Blog
While the deal is a step in the right direction, there are still some potential risks for the market related to it. First, theres the chance that the deal did not go far enough and could ultimately help lead to an eventual downgrade of US debt. Though credit agencies Fitch and Moodys both confirmed the federal governments AAA rating Tuesday. Theres also the risk that the cuts in the deal are too frontloaded to one or two years from now and will dampen an already fragile recovery. In fact, on Monday and Tuesday, US stocks traded lower despite news of the debt deal.
2011-08-02 Russ K.s Market Calls | Developed & Emerging Markets by Russ Koesterich of iShares Blog
I started the year with a bias for developed market equities over emerging market equities. Year-to-date, developed equity markets have outperformed emerging markets by roughly 4%. I had two main reasons for favoring developed market equities. Emerging market equities looked expensive relative to their developed market counterparts and I felt that emerging market inflation would be a more persistent problem than the market was discounting. Now, however, these major rationales for broadly favoring developed markets no longer hold.
2011-07-29 The Chances of a US Debt Downgrade by Russ Koesterich of iShares Blog
I continue to hold a negative long-term view of US Treasuries. That said, given the anemic state of the economic recovery and the growing risk aversion in market places, Treasuries may not necessarily sell-off in the near-term after a US debt downgrade. My view on Treasuries has a longer-horizon and is based on low real yields and a deteriorating fiscal picture. Finally, even if US debt is ultimately not downgraded in the coming weeks, investors need to realize that the US fiscal situation is an ongoing chronic problem that is unlikely to be fully addressed in the near term.
2011-07-22 The European Rescue Plan & Italy by Russ Koesterich of iShares Blog
At an emergency meeting Thursday, European leaders backed a rescue plan for Greece that was generally in line with what the market had been led to expect. Ultimately, I believe the news supports the case for risky assets such as equities and hurts the case for more risk-averse investments such as the US dollar and US Treasuries. I think that the risks facing the Italian market are more than adequately reflected in the valuations, as the country currently trades at just 9 times forward earnings and 0.8 times book value, one of the lowest valuations among developed countries.
2011-07-21 More on the Case for Mega Caps by Russ Koesterich of iShares Blog
While the recent June non-farm payroll report offered yet another reminder of the fragile and sluggish nature of the current recovery, we continue to believe that equities offer better prospects than fixed income. A combination of high margins, low inflation and some top-line growth will continue to support stocks. For the most part, the largest companies are cheaper, more profitable and more diversified than their smaller counterparts. In fact, US and global mega-cap companies remain one of the few unambiguously cheap asset classes, trading at roughly a 15% discount to the broader market.
2011-07-19 The Debt Ceiling Debate & China by Russ Koesterich of iShares Blog
This week, our first call focuses on the ongoing drama over the US debt ceiling and its implications for the US Treasury Market. While the clock continues to tick towards an August 2nd deadline for raising the debt ceiling, Congress and the White House are still nowhere near a compromise. Next, heres a quick update regarding our view of China. While we remain, for now, neutral on China, and hold a negative view of emerging markets in general, our stance on China is starting to shift to a more constructive, or positive, view.
2011-07-12 Monday Market Calls | US Retailers by Russ Koesterich of iShares Blog
The ongoing challenges facing the consumer – a weak labor market, anemic wage growth, too much debt and a stagnant housing market – have been well documented. To our thinking, these issues are not likely to be resolved in the near-term. Yet despite the long litany of problems, investors continue to favor US retailers. We believe this enduring faith in the willingness and ability of the US consumer to spend is misplaced.
2011-07-02 The True Size of the Budget Deficit by Russ Koesterich of BlackRock Investment Management
While Washington debates raising the debt ceiling and cutting spending to achieve $1 to $2 trillion of savings over the next decade, it’s worth pointing out that these savings may never materialize because the existing official budget numbers are too optimistic across several fronts.
2011-06-30 Thoughts on Rising Volatility by Russ Koesterich of BlackRock Investment Management
In a recent mid-year update to our 2011 outlook, we noted how equity market volatility is likely to rise further in light of continued near-term weak economic growth. Already, spring’s unusually placid markets have given way to heightened volatility. The most recent cause has been anxiety over Greece, but investors are not at a loss for things to worry about. This is a sharp departure from just eight weeks ago. In April, the VIX Index, which measures implied volatility on S&P 500 options, the “fear index” hit its lowest level since early 2007. Investors had a blindly optimistic world view.
2011-06-28 Monday Market Calls | European Banks & Germany by Russ Koesterich of BlackRock Investment Management
This week, our attention first turns to European banks. Since February, the sector is down more than 15% versus a 3% drop for global developed markets. Back in February, our thesis was that European banks were not taking adequate account of the ultimate hit they were facing due to write downs on European sovereign debt. While we are still advocating a negative outlook for European banks, we believe that much of core Europe now appears very cheap, and is reflecting a lot of bad news. In particular, we continue to believe German equities look attractive for long-term investors.
2011-06-24 Behind the Numbers: US Economic Activity & German PMI by Russ Koesterich of BlackRock Investment Management
While many market watchers on Thursday focused on the higher-than-expected latest weekly domestic initial jobless claim data, we believe the key figures released Thursday were the Chicago Fed National Activity Index and Purchasing Managers Index (PMI) figures for Germany. The US initial jobless claim applications in the week ended June 18 increased 9,000 is clearly another sign of the decelerating recovery. Still, that the May Chicago Fed National Activity Index came in at -0.37, well below expectations of -0.05 but above April’s -0.56 reading, is especially important.
2011-06-23 The Most Serious Risk to the Recovery: Oil Prices by Russ Koesterich of BlackRock Investment Management
While we believe the recent economic slowdown represents a deceleration rather than a reversal of the global recovery, there are certain events that we believe could turn the current fragile recovery into a failed one. In particular, we believe investors should pay careful attention to events in the Middle East. Why? We believe that the most serious risk to the global economy is another spike in energy prices. While the events that began in Tunisia earlier this year were both unexpected and unprecedented, the world is now aware of the political fragility of large parts of the Middle East.
2011-06-17 Update on The Case for Equities: The Slowing Recovery by Russ Koesterich of BlackRock Investment Management
Last month, we described why we believe that over the long term, there’s a case for the outperformance of equities. But what does the slowing recovery mean for equities? While we have been arguing that the summer is likely to be characterized by higher volatility, we believe that absent a dramatic economic slowdown, equity markets still appear reasonable. The fact that equity valuations reflect much of the bad news should help cushion the near-term downside for stocks. And long-term, equities still appear to better reflect the world’s risks and worries than their pricier cousin, bonds.
2011-06-15 Russ Koesterich Reviews ‘This Time is Different: Eight Centuries of Financial Folly’ by Russ Koesterich of BlackRock Investment Management
The recent recession has been, and will continue to be, very different from the typical post-World War II recessions. Since there are so few recent examples to guide us, it’s important not to draw conclusions about the current recovery just by examining the last 50 years or so. Taking a longer-term perspective is key and that’s precisely what economists Carmen Reinhart and Kenneth Rogoff do. While the book came out in 2009, it is especially relevant to today’s investors as it helps put the effects of the recent credit crisis in the right historical context: a very long-term one.
2011-06-15 Behind the Numbers: Retail Sales by Russ Koesterich of BlackRock Investment Management
On Tuesday, the Commerce Department said retail sales in May fell less than expected. If you look behind the numbers, however, the new retail data clearly shows a deceleration in consumption.
2011-06-08 Behind the Numbers: The Latest from the Federal Reserve by Russ Koesterich of BlackRock Investment Management
On Wednesday, the Federal Reserve Board released its latest Beige Book report, which provided more color on the recent slowdown and indicated the recovery is likely to be anemic and uneven. According to the report, which is a summary of anecdotal information from each Federal Reserve Bank on its district’s current economic conditions, “economic activity generally continued to expand since the last report,” though it did slow somewhat in four of the 12 districts. In particular, “some slowing in the pace of growth” was noted in the New York, Philadelphia, Atlanta, and Chicago districts.
2011-06-07 Monday Market Calls | US Retailers and Emerging Market Bonds by Russ Koesterich of BlackRock Investment Management
Call #1: Maintain Underweight US Retailers. Last week, the main monthly gauge for manufacturing activity and May’s non-farm payroll report both came in weaker-than-expected and both confirmed that the economy is experiencing a dramatic slowdown. Call #2: Neutral Emerging Market Bonds. The other implication of a slower global economy is that bonds should do better relative to stocks. Given what appears to be a case of extreme over valuation, we would still advocate a negative view on US Treasuries, but we are now changing our view of emerging market bonds from negative to a neutral stance.
2011-06-01 Overweight Healthcare and Exiting Australia by Russ Koesterich of BlackRock Investment Management
This week, our attention turns to the recent slowdown in the global economy and what it means for investors. Over the past month, both equity and commodity markets have staged a modest retreat. One potential cause of the slowdown is the lagged impact of higher commodity prices, which have historically acted as a drag on growth. Late last year, we advocated an overweight to Australian equities, which we then reiterated in early April. Since the initial call, iShares MSCI Australia Index Fund (EWA) has gained around 6.5%. We are now changing our view to neutral for a number of reasons.
2011-05-26 The Case for Equities by Russ Koesterich of BlackRock Investment Management
With global equity markets up over 100% from their 2009 lows, many investors are questioning whether it is time to lower their strategic allocation to stocks. While there are no shortages of risks facing global equity markets, overall we find that most markets are fairly valued and arguably already reflecting some of the risks – particularly higher inflation and interest rates – that are likely to challenge the global economy. We believe that over the long term, equities are still likely to produce higher nominal (inflation-adjusted) and real returns than other financial assets.
2011-05-24 The Federal Debt Ceiling and Treasuries by Russ Koesterich of BlackRock Investment Management
The federal government is limited by law as to the amount of debt it can issue. Currently the debt ceiling is 14.3 trillion, an amount that was exceeded last Monday. Fortunately, the government can operate and pay its obligations through various accounting mechanisms. These mechanisms will allow the government to continue to function and avoid defaulting on its existing debt through early August, after which point the government could theoretically default on its Treasury obligations, something that has never happened in US history and would obviously be catastrophic for financial markets.
2011-05-17 Europe and Volatility by Russ Koesterich of BlackRock Investment Management
The news in Europe continues to be mixed. On the plus side, the core countries in Europe continue to post strong economic growth. We had more evidence of that this week with solid GDP results from both Germany and France. The problem of course remains the periphery, particularly Greece. Greek debt was downgraded again and markets are now convinced that Greece will need to restructure. US market volatility has been its lowest since 2007, with the VIX Index – which measures implied volatility on S&P 500 options – hitting a four year low of below 15 in April. We believe this is too low.
2011-04-13 U.S. Budget Watch: Much Ado About Nothing by Russ Koesterich of BlackRock Investment Management
Friday Congress and the White House agreed to cut $39 billion in federal spending to avoid a shutdown. The agreement would fund the government for the remainder of the fiscal year, which ends on September 30th. In other words, after weeks of partisan debate, Congress and the White House were able to reach an agreement on 1% of the federal budget. What remains to be settled are three more serious and contentious issues: the imminent breach of the federal debt ceiling, the 2012 budget, and the long-term solvency of the three main entitlement programs Social Security, Medicare, and Medicaid.
2011-04-05 Mega Caps and Russia by Russ Koesterich of BlackRock Investment Management
While we remain underweight emerging markets in general, one emerging market is looking particularly cheap. While we would be concerned about having a long-term overweight to Russia given that country’s political situation, from a short-term perspective the market looks interesting. We first mentioned Russia as a possible play in early February – since then the benchmark index is up nearly 7%, but Russia still looks cheap trading for less than 6x earnings. Also unlike China or India, which are negatively impacted by higher oil prices, Russia is a natural beneficiary of the spike in crude.
2011-03-28 Monday Market Calls by Russ Koesterich of BlackRock Investment Management
As Europe continues to muddle along, much of the bad news has been discounted in with the exception of the banks, which are likely to continue to remain under pressure. S&P cut Portugal’s rating two notches as its parliament rejected the government’s new austerity measures, prompting Prime Minister Jose Socrates to resign. Meanwhile Moody’s downgraded 30 small Spanish banks with mostly negative outlook following the earlier sovereign debt rating downgrade. However, despite the banking issues, Spain has been able to continue financing its debts.
2011-03-21 iShares Bi-Weekly Strategy Update by Russ Koesterich of BlackRock Investment Management
Last week, world equity markets suffered their sharpest correction since August of 2010. Unrest in the Middle East and sovereign debt issues in Europe are contributing to the spike in volatility, but last week’s sell-off was primarily driven by the earthquake in Japan and related concerns over the safety of its nuclear power plants. The events in Japan are unlikely to detract from global growth, or change the market dynamics favoring equities. In fact given the recent flight to safety and accompanying drop in nominal bond yields, we reiterate our preference for equities over bonds.
2011-03-14 Monday Market Calls by Russ Koesterich of BlackRock Investment Management
Call #1: Underweight European equity market (with emphasis on banks) Call #2: Overweight developed (with preference for large/mega cap) vs. emerging markets. Year-to-date, emerging markets are down roughly 1.5% while developed market mega caps are up roughly 5%. Our view is reinforced by the recent market volatility and growing unrest in the Middle East. In this type of environment, large, quality companies are likely to prove more resilient.
2011-03-09 iShares Bi-Weekly Strategy Update Part 1 by Russ Koesterich of BlackRock Investment Management
The overall economy is demonstrating impressive resiliency to higher oil prices – as evidenced by the recent strength in the ISM manufacturing and services surveys – but investors should not be too complacent when it comes to the consumer sector. Even though labor markets are staging a slow-motion recovery, the US consumer still faces multiple headwinds, including anemic wage growth, too much debt, and a still fragile housing market. Oil crossing the $100 threshold will not help.
2011-03-09 iShares Bi-Weekly Strategy Update Part 2 by Russ Koesterich of BlackRock Investment Management
Recently, silver prices have benefited more than gold from the economic rebound. The relative gap between gold and silver suggests that it may be time for a pause in silver’s run. One of the many ironies of markets last year was the extent to which inflation occupied investors’ attention, despite its near universal absence. While inflation has recently accelerated in emerging markets and a few developed ones, inflation was and is still largely absent in the developed world. Yet, record low inflation did not stop investors from worrying about it.