
Russ Koesterich, CFA
Russ is Head of Asset Allocation for BlackRock’s Global Allocation Fund. He works with portfolio managers to establish the fund’s macro-level views and also develops systematic strategies to augment the team’s security-selection process and risk management. He is the author of two books, including “The Ten Trillion Dollar Gamble,” on positioning portfolios for the growing U.S. deficit.
Disclosure: The content Market Realist publishes should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of BlackRock.
More From Russ Koesterich, CFA
Macroeconomic AnalysisSigns that the US Economy Is Improving
The US economy added ~215,000 jobs in July, compared to ~260,000 in April and ~231,000 jobs in June. Although this number is dipping, it is still above the 200,000 mark, which is usually seen during economic booms.
Macroeconomic AnalysisThen and Now: Key Insights into the Technology Sector
US technology stocks have been split this year. NASDAQ closed at an all-time high of 5,106.6 on May 27. It took NASDAQ almost 15 years to regain the 5,000 levels.
MiscellaneousGreece Debt Drama: What’s Next?
Keep a close eye on further developments in the unfolding Greek debt drama and hope that it does not turn into a tragedy.
Company & Industry OverviewsWill Donald Trump’s Policies Drive Inflation Higher?
President-elect Donald Trump’s policies have the potential to push prices and inflation levels up.
Company & Industry OverviewsHow Stocks and Bonds Reacted to Trump’s Victory
The CBOE Volatility Index suddenly rose 6.0% on November 9, 2016, after it was clear that Trump had unexpectedly clinched the election.
Macroeconomic AnalysisWill the United States Recover or Lose Out?
Investors have once again flocked to bonds, the Japanese yen, and gold due to the 10.0% fall in China’s exports and concerns over a major rejig by the central banks.
Macroeconomic AnalysisFederal Spending and Interest Rates: Analyzing the Connection
What about the impact on interest rates? Here again, there is no consistent relationship between spending and interest rates.
Macroeconomic AnalysisWhy Aggregate Demand Could Help the Stock Market
Even if spending does rise, will it matter for the stock market? While there will doubtlessly be some stocks and segments that benefit, over the past century there has been no consistent relationship between federal spending and equity returns, as defined by the Dow Jones Industrial Average. Nor has there historically been much of a […]
Macroeconomic AnalysisIncreased Government Spending Can Have a Domino Effect
Many economists agree that the United States needs to shift from a reliance on monetary policy to more fiscal stimulus, but it is not clear that the political stars are aligning to do so…
Macroeconomic Analysis2016 US Presidential Elections: Investor Insight
Russ argues that the election may have less of an impact on markets than many are expecting.
Company & Industry OverviewsImpending Monetary Policy Decisions on the Price of Gold
On September 12, 2016, the Federal Reserve governor, Lael Brainard, hinted at a possible delay in the hike of the Fed rates.
Macroeconomic AnalysisGold versus 10-Year Treasury Bonds
The negative interest policy of the central banks is casting government bonds as a futile choice for investors compared to stocks and gold. As a result, bond prices dipped and yields started rising.
MiscellaneousHow Did the Dollar’s Move Affect the Price of Gold?
Gold is valued in dollars. As a result, the stronger dollar, driven by the recovery of the US economy, is pushing the gold prices further down.
MiscellaneousHow Has Gold Performed So Far in 2016?
Gold prices have gained 21% YTD in 2016 and closed at $1,308.40 on September 16, 2016.
MiscellaneousHow Has the Volatility of Gold Changed over the Years?
The performance of gold as a contrast to the S&P 500 is reflected during periods of high and low volatility. The S&P 500 has always outperformed gold since April 10, 2013, during periods of both high and low volatility.
Miscellaneous2015 Was No Picnic for Gold Investors, Either
In 2015, gold prices had shed 9.6% YTD and closed at $1,060 on December 30, 2015. The precious metal, which had recorded a double-digit growth rate in January, started dipping in March.
MiscellaneousUnlucky 2013 Took Away Gold’s Sheen
Gold’s yearly performance dipped for the first time in ten years on April 10, 2013. Consequently, on the same day, the Dow, the S&P 500, and the NASDAQ rose 0.9%, 1.2%, and 1.8%, respectively.
MiscellaneousWill Gold Rally if Volatility Picks Up?
It’s true that market volatility has been unusually low lately, but it’s expected to rise. There are several ways to mitigate the impact of rising volatility and historically, gold has been one of the more effective tools.
Macroeconomic AnalysisHow Lower Interest Rates Elevated Market Valuations
Lower interest rates have an inverse relationship with stock prices, so when interest rates are lower, the S&P 500’s trailing price-to-earnings multiple rises.
Macroeconomic AnalysisWhat’s the Primary Driver of Corporate Earnings?
Nominal gross domestic product in the United States is strongly correlated with the trailing-12-month earnings growth of the S&P 500.
Macroeconomic AnalysisIs the S&P 500 Reasonably Valued?
Currently, the US benchmark index, the S&P 500, has risen 6% year-to-date. The market is trading at higher valuations compared to its historical average.
Macroeconomic AnalysisWhat Do Future Gains in the US Market Depend On?
Improving fundamentals in emerging markets and higher commodities prices have helped emerging markets to deliver higher returns.
Company & Industry OverviewsEnergy Bonds Are Running on Empty
The correlation between oil and high-yield bond indexes is very high. Where oil goes, high-yield bonds follow.
Company & Industry OverviewsHigh Yield Still Has a Place in Most Portfolios
The three-month Volatility Index (or VIX), which measures the implied volatility of options on the S&P 500 stock market index, is approaching record lows.
Macroeconomic AnalysisThe Easy-Money Boat Has Sailed
Yields on high-yield debt (HYG) (JNK) and spreads between high-yield debt and Treasuries both fell over the last year.
Macroeconomic AnalysisHow Moving Away from the 60/40 Portfolio Improves Returns
High-yield bonds provide higher yields to a portfolio. Minimum volatility stocks provide some cushion when equities fall.
Macroeconomic AnalysisHow to Tweak Your Porfolio given High Bond Durations
Between 2003 and 2007, when the economic growth was strong, the correlation between stocks and bonds was -0.18.
Company & Industry OverviewsHow Low Bond Yields Affect Your Portfolio
The ten-year Treasury (IEF)(TLH) yields are currently testing their all-time low at around 1.5%.
Company & Industry OverviewsWhat Influences Stock Returns?
The US market (IWF) (IWD) is looking expensive based on historical valuation multiples and also relative to many other developed markets.
Company & Industry OverviewsAre Stocks Really Cheap Relative to Bonds?
Based on the Fed Model, Bank of America Merrill Lynch argues that stocks are still cheap compared to bonds despite the recent rally in the S&P 500 (IVV) (SPY).
Company & Industry OverviewsIntense Search for Yield Leads to Emerging Market Debt
Under the current uncertain economic circumstances, investors flocked to emerging market debts in search of higher yields.
Company & Industry OverviewsOpportunities Galore in Emerging Markets
Emerging markets are looking attractive. In July, after nearly a year, stocks hit the highest level after chances of an interest rate hike by the Fed abated to a large extent.
Macroeconomic AnalysisWhy Lower Fiscal Deficits Are Causing a Dearth in Bonds
All major countries have reined in their deficits in the last six years. A fiscal deficit usually means the government has to issue bonds in order to bridge the gap.
Macroeconomic AnalysisLow Yields: The Reason Lies outside the United States
The reason for low yields lies outside the United States. Global yields have been heading south over the last ten years.
Macroeconomic AnalysisHow Has Lower Nominal GDP Growth Affected Yields?
The US GDP growth rate is on a somewhat solid footing compared to the rest of the world. The stronger dollar has been a drag on exports and, by extension, on GDP growth.
HealthcareWhy Even a Good Jobs Report Couldn’t Cause Yields to Rise
We could see fewer jobs added going forward. If this trend continues, bond (AGG) (BND) yields could most likely stay low.
Company & Industry OverviewsWhy Monetary Stimulus Is Proving Less Effective
As we’ll see in this part of the series, the monetary stimulus has been less effective in Europe and Japan.
Company & Industry OverviewsYou Are Living in a Low-Return Environment
Equities slumped worldwide after the shocking Brexit vote, but US equities had already become directionless. We’re definitely living in a low-return environment.
Macroeconomic AnalysisHow do Treasury Yields Explain the Variation in Utility Stocks?
Since December, ten-year Treasury yields have fallen by 2.1% to 1.6%.
Macroeconomic AnalysisWhy Do the Defensive Sectors Appear More Expensive?
The defensive sectors appear more expensive than they have been in the past, as well as more expensive than cyclical sectors.
Macroeconomic AnalysisYield-O-Philes Face a Difficult Challenge
Yields remain at unattractive levels. This has caused yield-thirsty investors to flock to high-dividend-yielding stocks, driving their valuations higher.
Macroeconomic AnalysisYield for Yields! Where Can You Find Yields Today?
Not only are European stocks cheaper than American ones, they also offer more attractive dividend yields.
Company & Industry OverviewsWhy the CFNAI Has Historically Led Overall Growth
There are no truly reliable measures of future growth. That said, certain economic statistics have historically led overall growth.
Company & Industry OverviewsHow to Navigate Uneven Economic Growth
A number of factors have contributed to the slowdown, including soft overseas growth and a sharp drop in capital spending by energy and mining companies.
Company & Industry OverviewsIs Now the Perfect Time and Place for Gold?
The data from the Bureau of Labor Statistics shows that average hourly earnings have reached $21.45, up by 2.5% YoY, and represent the highest growth since January.
Company & Industry OverviewsHow Inflation Expectations Affect Gold Prices
In the 1990s and 2000s, when gold prices tracked inflation, although the correlation seems to be a bit weak compared to the 1970s and 1980s.
Company & Industry OverviewsWhy Gold Has Performed Better When Interest Rates Are Lower
J.P. Morgan’s analysis states that gold has outperformed equities, bonds, and a broad commodities index in a low interest rate environment.
Company & Industry OverviewsWhy Predicting Gold Returns Is a Dubious Exercise
Generally, gold is viewed as a hedge against rapid inflation and lower interest rates. That makes it hard to value gold as there are no cash flows or earnings associated with it.
Company & Industry OverviewsWhy Gold Shines during Uncertain Times
With the rise in volatility and lower returns from the stock market, coupled with negative or lower bond yields, investors can consider gold to be a safe haven investment and an alternative asset class.
Macroeconomic AnalysisHow Can You Add Carry to Your Portfolio?
Adding carry to your portfolio in a low-return scenario could cushion your portfolio.
Company & Industry OverviewsWhy Volatility Is Likely to Remain High
Volatility has been relatively low over the last few years. VIX averaged 14 in 2014, which is much lower than the long-term average of 20. It averaged 16.7 in 2015.
Macroeconomic AnalysisWhy Your Portfolio Needs More Carry
Since 2009, equities have staged a comeback. Between 2010 and 2015, the S&P 500 index has risen 10.3% on a CAGR basis. Most of the comeback is due to multiple expansion.
Company & Industry OverviewsDo Current Valuations Matter for Future Returns?
The S&P 500 is trading at 19.1x earnings, which is a 14% premium over its ten-year average. Emerging markets are trading around their long-term average of 13.5x earnings.
Company & Industry OverviewsIs It Time to Play Value Stocks?
In the past few years, value stocks haven’t posted impressive gains. Many of them look cheap and have trailed the broader market as investors lap up growth stocks.
Company & Industry OverviewsRecovery for the Manufacturing Sector Is Not Yet in Sight
Manufacturing growth as measured by the ISM (Institute for Supply Management) index ended lower for the fifth consecutive month at the end of February. However, it rose in March
Company & Industry OverviewsWhy Emerging Markets Are Trading at a Discount to Developed Markets
With the recent fall, some of these emerging markets have certainly become very cheap compared to most of the developed markets.
Company & Industry OverviewsWhy Markets Are Likely to Remain Volatile in the Near Term
We have yet to see much stabilization in the global economic data, which could lead to volatile markets.
Company & Industry OverviewsAre Global Equity Markets Reasonably Valued after Sell-Off?
The recent correction in the global (SCZ) equity markets makes valuations very attractive.
Company & Industry OverviewsGlobal Equity Markets Have Fallen Steeply in the Past Year
Global equity markets (EFA) have been on a rollercoaster ride for the past few months. The sharp fall in stocks last year was initially triggered by fears of a hard landing in China (MCHI).
Macroeconomic AnalysisHow to Ballast Your Portfolio with Bonds
Municipal bonds (or munis) were the best performers in 2015 with returns of 3.2%. Meanwhile, investment-grade corporate bonds (LQD), long-dated Treasuries (TLT), and high-yield bonds (HYG) all gave negative returns in 2015.
Macroeconomic AnalysisTreasury Yields Could Stay Low: Here’s Why
The ten-year Treasury (IEF) yield has plunged in recent weeks. It dipped from 2.3% at the start of this year to ~1.6% currently, in a risk-off trade.
Macroeconomic AnalysisWhy Higher Correlations Between Risky Assets Don’t Bode Well
Increasing correlations between risky assets could leave your portfolio vulnerable.
Macroeconomic AnalysisWhy You Should Look Beyond Treasuries for Portfolio Ballast
Last year, the correlation between stocks and Treasuries increased. Adding Treasuries to an only-equity portfolio became less valuable.
MiscellaneousIran and Saudi Arabia: Which Is Likelier to Weather the Oil Storm?
The clear implications will be an oil glut that takes longer to work through and more downside for oil prices this year.
MiscellaneousWhy Iran Desperately Needs Higher Oil Prices
Iran never enjoyed the oil windfalls of Saudi Arabia, at least partly because it forwent oil profits in lieu of growing a nuclear arsenal.
MiscellaneousSaudi Arabia Is Depleting Its Foreign Exchange Reserves
It’s been more than a year since Saudi Arabia has had a new king, and what an eventful year for the country under his leadership!
Company & Industry Overviews2015’s Market Winners and Losers
Utilities (IDU), among other sectors like staples (XLP), are usually dubbed “bond proxies.” This is because the utility sector is sensitive to interest rates.
MiscellaneousCurrency-Hedged ETFs Fared Well in 2015
Keeping with my tradition of comparing the year that was to the year that I expected, here’s a summation of what went according to plan, what was sort of in the ball park and what was a total miss.
Company & Industry Overviews2015 Saw Rising Volatility yet Stagnant Returns
Keeping with his annual tradition, Russ compares the year that was to the year that he expected.
Macroeconomic AnalysisWhy Changing Gears to Focus on TIPS Could Be Rewarding
The market may be too complacent about inflation expectations at the moment. If this is true, this makes TIPS attractive at the moment.
Macroeconomic AnalysisWhy Cash Might Drag Down Your Returns
It is advisable that investors allocate a small portion of their portfolio to cash to take advantage of the flexibility the asset offers.
Macroeconomic AnalysisDo Large Caps Offer More Value Relative to Small Caps?
Large caps will be in a much better position to navigate through this period given their cash positions.
Macroeconomic AnalysisThe Pressure on Cyclical Commodities Is Likely to Continue
Commodity (DBC) prices have been heading lower since 2011, and commodities have been the worst-performing asset class of 2015.
Macroeconomic AnalysisWhere You Can Find Yield Today
Preferred stocks have typically seen the highest yields in the investment-grade universe, which makes them an attractive alternative to other high yielding securities.
Macroeconomic AnalysisGet Ready for a ‘Low for Longer’ Interest Rate Environment
With yield likely to be a scarce commodity due to the global slowdown, utilities and other high-dividend paying sectors like staples (FSTA) are gaining investor attention.
Macroeconomic AnalysisWhy Some Emerging Markets May Benefit if the Fed Delays
Some emerging markets may benefit as Fed the holds off on a rate hike.
Macroeconomic AnalysisCould Small Caps Continue to Underperform Large Caps?
As I’ve discussed in the past, small caps have struggled this year despite optimism that a strong dollar would favor this style.
Macroeconomic AnalysisWhy Rate Hikes Don’t Imply the End of Long-Term Performance
Rate hike has historically been a temporary headwind for stocks; it has rarely been a harbinger of a bear market.
Macroeconomic AnalysisIs the December Hike a Certainty?
There are certain market segments that are more sensitive to changes in monetary policy and may benefit if the Fed delays liftoff further.
Macroeconomic AnalysisAll That Glitters: Why Remain Cautious of Precious Metals?
The combination of a strong dollar and rising real rates is having a predictable effect on precious metals prices.
Macroeconomic AnalysisWhy Real US Rates Have Been Climbing
Real US rates have been climbing, while rates are falling in much of the rest of the world. As Russ explains, this divergence has a number of implications for investors.
Macroeconomic AnalysisWhat’s the Biggest Driver of Earnings Growth?
Economic growth is the biggest driver of earnings growth. Earnings growth seems to follow the same trajectory of GDP growth.
Macroeconomic AnalysisUS Equities’ Valuations Remain Lofty: How Come?
Valuations on US equities remain lofty relative to other developed markets.
Macroeconomic AnalysisKeep an Eye on these Recession Indicators
In order to assess the odds of an imminent recession, these three indicators are key to watch.
Macroeconomic AnalysisWhy Rising Credit Spreads Point to a Slowing Economy
The difference between the yields on corporate bonds and Treasury bonds of the same maturities is often known as the “credit spread.”
Macroeconomic AnalysisIs the United States Heading into another Recession?
Worried the US is on the cusp of another recession? Russ shares the economic indicators worth paying attention to.
Macroeconomic AnalysisWhy Treasury Inflation-Protected Securities May Offer Some Value
TIPS may offer some value as inflation breakeven seems modest. TIPS provide investors a hedge against inflation just like gold (GLD) and other commodities (DBC).
Macroeconomic AnalysisWhat Other Factors Influence the Inflation Outlook?
Households are in the process of paying off debt, which means that not only is credit growth likely to remain tepid, consumption is likely to remain muted, and in turn, so is inflation.
Macroeconomic AnalysisWhat Factors Are Pointing to Muted Inflation Pressures?
Tepid demand from abroad, elevated inventories in the US, and an appreciating dollar (UUP) signal muted order growth.
Macroeconomic AnalysisThe Case against US Consumer Discretionary Stocks
Given the headwinds that consumption faces, consumer-related sectors—especially the US consumer discretionary sector—appear expensive.
Macroeconomic AnalysisWhich Sectors Look Attractive as Interest Rates Remain Low?
With long-term rates stuck, utilities look less vulnerable, especially when you consider that utilities have underperformed other market sectors this year.
Macroeconomic AnalysisWhere Can Markets Seek Comfort as Growth Slows?
Global stocks, as tracked by the iShares MSCI ACWI ETF (ACWI), rose 6% since September 28. Weak economic data in the US could delay the rate hike.
Macroeconomic AnalysisEnergy Sector Headwinds: Supply Side Poses a Challenge
The supply side is adding to energy sector headwinds (IXC).
Macroeconomic AnalysisWhat Has Muted the Demand for Commodities?
The demand for commodities has been dampened by a variety of factors, particularly in the last two years.
Macroeconomic AnalysisCommodities Slump: Have We Reached a Bottom?
The talk about the commodities slump (USCI) is almost ubiquitous. It is hard to ignore the freefall most commodities (DBC) seem to have been in during the past year.
Macroeconomic AnalysisCurrent High Volatility Regime Will Likely Persist
The high volatility regime will likely be the norm in the future. State Street observed that the US market has already clocked 42 highly volatile days in 2015.
Macroeconomic AnalysisWhat a Dovish Fed Means for Stocks
In its recent meeting, a dovish Fed pointed out that the “uncertainties abroad” made it risky to raise the policy rate and announced its decision to leave the federal funds rate unchanged at 0%–0.25%.
Macroeconomic AnalysisWhy To Expect Muted Returns from US Equities
We can expect muted returns from US equities going forward. US stocks face the prospect of higher interest rates, albeit gradual and from unusually low levels.
Macroeconomic AnalysisWhy Is a Global Recession Unlikely?
While 2016 is likely to be another year of slow global growth, I don’t foresee a global recession. China remains a genuine threat, but the government has additional tools to manage a slowdown.
Macroeconomic AnalysisWhy Asian Currencies Have Fared Relatively Well
Commodity-exporting economies like Russia, South Africa, and Brazil have seen a massive depreciation in their currencies this year, but Asian currencies have not seen a big swing.