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'Benign environment' for stocks to drive markets higher: Koesterich

Pras Subramanian

As the temps heat up, and summer rolls on, investors and Wall Street pros alike tend to turn their attention from the daily moves of the market and towards summer activities like travel, weekend barbecues, and maybe catching a ball game.

Low volume and tame volatility (^VIX) thus far this summer signals a market that can’t be bothered. However stocks shouldn’t be ignored, with the daily grind seeing stocks hitting all-time highs again today.

The question is can stocks break on through to the other side, or will they fizzle out near a technical resistance level. Technicians like MKM Partner’s Jonathan Krinsky notes that although record high stocks are in uncharted territory, 1,980 on the S&P 500 (^GSPC) seems like the next target. If the S&P pushes higher and takes out 1980, the next point of resistance would be at 2,010.

Blackrock's chief investment strategist Russ Koesterich expects steady growth, even at these heady levels. “First of all you still have a very accommodative central bank and we’ve had more evidence of that this week,” he says in the attached video. “The Fed is going to take their time in raising rates, and that of course is helping to support stocks.”

Current strength in the M&A market is also another boon to equities, Koesterich notes. But the most important factor, according to the longtime market strategist is “that we’re still in this environment in which not only are rates low, and inflation low, but the economy is getting better, but not getting so strong as to scare the Fed.” This is a “benign environment” for stocks, as he calls it, and has helped the market the past couple of years and it continues to aid stocks even today.

While Koesterich expects steady, single-digit gains in U.S. stocks for 2014, for investors seeking higher returns he suggests looking abroad at European and Japanese markets.

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