Read The Portfolio Compass Oct 2014
- Upgraded U.S. stocks to neutral/positive from neutral.
- Downgraded hedged foreign bonds from negative/neutral to negative.
- Our 2014 stock market return forecast remains for gains of 10-15%, supported by continued near- double-digit earnings gains in the second half.*
- Our negative foreign equities view reflects lackluster growth and structural impediments in Europe. We would like to see technicals improve to become more positive on EM.
- We view energy as an intriguing buy-the-dip opportunity following crude oil’s bear market decline to $80.
- A lower than benchmark weighting to bonds may be appropriate, as the yield does not compensate investors for the interest rate risk.
- The growth scare has faded but slowing growth in Europe, a strong U.S. dollar, and decelerating inflation may support bonds over the near term.
- We downgraded hedged foreign bonds as the rapid fall in European government bond yields and rise in prices has led to more expensive valuations.
- From a technical perspective, the S&P 500 has moved higher off key support at the 200-day simple moving average, increasing the likelihood for a buy-the-dip opportunity at these levels.