Economic growth in the U.S. and China should pick up in the second half of the year as Europe’s economy stabilizes at the fastest rate since 2010.
With valuations and margins already high, U.S. equities will likely post limited gains over the medium term. Large-cap stocks offer better prospects than small- and mid-cap shares.
Potential gains from international equities outweigh the currency risks, as Europe and the emerging markets offer the prospect of higher earnings growth and Japan continues to reform.
For fixed-income investors, higher-yielding debt provides the best protection against rising rates at home, while international investors should focus on markets where currencies can weather a stronger dollar.