The Bottom Line. We expect long-term interest rates will rise this year, if only modestly. Ultra-low yields overseas will continue to keep demand for U.S. bonds up, supporting their prices and exerting some downward pressure on long-term rates. But even if rates remain relatively low, the bond market proxy sectors look extremely vulnerable, as their valuations are highly sensitive to increases in interest rates. Given this dynamic, we’d continue to focus on more cyclical, less rate-sensitive segments of the U.S. equity market: technology, financials and integrated oil companies.
Source: Bloomberg
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog and you can find more of his posts here.