Gross domestic product is forecast by the International Monetary Fund to
grow 3.1% in 2015. That will put the U.S. ahead of most of its peers, which are
facing serious headwinds: Europe may slip into its third recession since the
financial crisis, and Japan’s stimulus effort hasn’t revved up its economic
engines. China, meanwhile, is trying to maneuver slowing growth into a soft
landing.
To make sure growth here doesn’t stall out, the Fed will likely wait till
late 2015 to raise rates, and any increase is expected to be small and gradual.
That’s still good news, though. “The U.S. economy is in a position to withstand
the beginning of interest rates rising—something our trade partners can’t do
yet,” says Chun Wang, senior analyst at the Leuthold Group.
A stronger dollar means cheaper overseas travel and cheaper imports—and the
latter should keep inflation from picking up momentum as well.
While bonds that mature in less than three years are usually considered the
safest, “short-term high-grade bonds could be the most vulnerable in 2015 if
the Fed starts raising rates as expected,” says Lisa Black, interim chief investment
officer for the TIAA General Account. Because the recovery here has been so
much stronger than in the rest of the world, global investors will continue to
favor 10-year Treasuries. Thus short-term rates, over which the Fed has more
influence, are likely to see a much bigger rise relative to their current
level.
If you’ve kept a big chunk of bond money in short-term mutual or
exchange-traded funds recently—either to hedge inflation risk or to get more
yield on cash—get back to an intermediate strategy in 2015
Expect the unexpected. When stocks were spooked in September by Ebola reaching U.S. shores and increased U.S. airstrikes
against ISIS, the S&P 500 fell 7% but European shares sunk 13%. U.S. stocks
continued to lead when investors returned to focusing on economic growth.
While it’s impossible to predict what will rattle the markets in 2015, what
you can do is take stock of your fortitude. If you persevered and profited from
this recent snap back, plan for another in 2015 and bet on U.S. outperformance.
On the other hand, if you panicked and sold stocks, dial back your equity
exposure by, say, five percentage points if it will keep you hanging on to
your allocation in rough seas. Redirect that money to U.S. Treasuries. Jack
Ablin, chief investment officer for BMO Private Bank, says that these should
benefit from a crisis: “It’s remarkable how Treasuries and the U.S. dollar are
the newly appointed safe-haven vehicles for the world.
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