Two years after protesters camped out in lower Manhattan for the Occupy Wall Street movement, it could be argued that very little has changed. In fact, the S&P 500 is within one percent of its record high amidst a backdrop of mixed and largely uninspiring economic data.
You bet it does, says Russ Koesterich, chief investment strategist at Blackrock, in the attached video.
"In some ways we're still in the same environment we've been in since 2010," he says, pointing to an economy that's getting better at a very slow pace, an uneven recovery, and consumers who are still struggling with a little too much debt and weak income growth.
It's a scenario he thinks will lead to higher volatility going forward, as well as broken hearts if you're invested in the wrong place.
"We expect the economy to improve but I wouldn't base an investment thesis on the economy going back to 3% or 3.5% growth any time soon," he says.
Of course the known risks are all in plain site (Fed uncertainty, housing and rising rates, Syria and the Middle East, impending budget showdown) and therefore not likely to shock anyone. As a result, investors have recently gone on a bit of a risk binge, citing things such as Larry Summers withdrawing his name from consideration to run the Fed, as reasons to get long stocks.
But Koesterich says this risk-on trade includes an interesting twist.
"I think it's a little bit more subtle than the typical risk-on trade," he says, explaining that "investors are looking for pockets of value in the market" which include such things as Emerging Markets (EEM) and "beaten up cyclicals" that he says "stand out in a market that's no longer that cheap."
Aside from the choppiness, Koesterich still thinks stocks will be higher six to twelve months from now and urges investors to steer clear of one key area.
"The key is to look for areas that are levered to other parts (of the economy) than U.S. consumption."
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