As for what this means for investors, three implications are top of mind.

The Impact of Slower Global Growth

PRESSURE ON CYCLICAL COMMODITIES

Sluggish global growth and muted inflation continue to put pressure on commodity prices, particularly those most exposed to global growth, like prices for industrial metals and oil.

CONTAINED LONG-TERM RATES 

In an environment in which inflation is modest and yields remain low, investors are likely to continue to stretch for yield. Case in point: Last week utility stocks, as measured by the Dow Jones U.S. Utilities Index, managed to buck the broader selling and post a small gain, according to numbers via Bloomberg. Though the sector remains expensive, in a low yield world, investors are more willing to pay a premium for companies with relatively safe dividends.

CONTINUED DESIRE FOR YIELD IN PORTFOLIOS

While I wouldn’t chase classic yield plays like utilities or consumer staples, other parts of the yield space look more interesting. For example, preferred stock, as measured by the S&P U.S. Preferred Stock Index, appears reasonably valued, and offers an opportunity to seek yield. To the extent that growth remains sluggish, I believe that yield is likely to remain a valuable commodity.

 

Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog.