Now that the fourth quarter is here, it’s worth taking a final look at how the rest of the year is likely to develop. With three months left to go, it still makes sense to review your portfolio to make sure you’re prepared for what’s likely in store for the remainder of the year.
So, what exactly do I foresee for this final quarter of 2014? Certainly, the world is awash in geopolitical uncertainty and this is likely to continue. But good news on the U.S. economic front should help temper worsening geopolitical tensions and slowing growth in Europe.
Of course, a strengthening U.S. economy may have a downside. If the Federal Reserve (Fed) increases interest rates too soon or by too much, markets could be rattled. Another trend to watch: diverging growth. Europe and Japan are still struggling, while the U.S. continues to evidence signs of strength.
At the same time, stocks are on pace to finish the year with returns in the mid to upper single digits, and I still expect rates to rise, if only modestly, for the remainder of the year.
Against this backdrop, my colleagues and I share five portfolio moves to consider in our latest quarterly update to our 2014 outlook piece, “The List: What to Know, What to Do – Fall Update.”
Stick with stocks, but be choosy. While stocks are no longer cheap, they still look attractive versus the alternatives, namely bond and cash, and the economic and monetary environment overall remains supportive of equities. However, not every country or market segment is the same. So, as I’ve mentioned before, investors should focus on relative value—in other words, do your comparison shopping across markets and sectors. Selectivity is key. For more on where I see value today, check out my latest Investment Directions monthly market outlook piece as well as the fourth-quarter 2014 outlook from the BlackRock Investment Institute.
Look outside U.S. borders. Increasing international exposure makes sense in general, but even more so these days when most stock market bargains are found overseas. U.S. stocks are no longer cheap, and that has stocks outside U.S. borders looking even more reasonable. Specifically, I see opportunities in Japan, which represents one of the few stock market bargains in the world today, and in select emerging markets, particularly in China and other Asian countries.