In other words, if consumption and the broader economy are to remain resilient going forward in the face of consumer deleveraging, they will need to be supported by an improving labor market leading to faster personal income growth.
On the other hand, if we see continued muted growth in personal income, US consumption, and the broader economy, will be vulnerable going forward to the tax increase and to what I currently expect to be a modest speed bump in the second quarter — the likely delayed impact of The Sequester spending cuts.
As such, considering where US valuations are, I continue to advocate reducing positions in consumer-related sectors, and looking to put new money to work in international markets, mega caps and the energy and technology sectors. These sectors are accessible through the iShares S&P 100 Index Fund (OEF), the iShares Dow Jones U.S. Energy Sector Index Fund (IYE) and the iShares Dow Jones U.S. Technology Sector Index Fund (IYW).
Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist.