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Mid-year check-in: 5 portfolio moves for the second half of 2014

Russ Koesterich, CFA of BlackRock

Mid-year check-in: 5 portfolio moves for the second half of 2014 (Part 1 of 4)

As we approach mid-year, Russ reflects back on the first half of 2014 and looks ahead at how investors could consider adjusting their portfolios for the remaining half.

Though 2014 so far has seen a number of surprises, the year has played out mostly according to the 2014 outlook my colleagues and I laid out late last year.

First, about those surprises: The U.S. economy’s  (IVV) weather-related first-quarter slowdown was unexpected as were the geopolitical tensions dominating headlines.

Market Realist – The real gross domestic product decreased at an annual rate of 2.9% in the first quarter of 2014, according to the third estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2013, real GDP increased 2.6%. The graph below shows the sharp fall in real gross domestic product. We can account for the entire decline in overall GDP in the first quarter through a slowdown in two particularly volatile components—exports and inventory investment. The unusually severe winter weather had an extremely negative impact on consumer spending on food services and accommodations, which fell for the first time in four years.

Market Realist – The escalating tensions between Russia (RSX) and Ukraine dominated headlines. The conflict was a cause for concern, as geopolitical tensions marred investor confidence. Economic activity in China (FXI) continued to slow down, raising concerns that the slowdown could ripple through market confidence and foreign trade channels. Added to the mix was a concern about the pace of inventory accumulation in the U.S. (SPY). This pace had been more rapid than expected and could lead to a production slowdown.

More importantly, we were surprised by the magnitude of the spring bond (LQD) rally and the associated drop in interest rates (TLT).

Read on to find out outlook for investors for the latter half of the year.

Continue to Part 2

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