Jim McDonald, senior vice president and chief investment strategist at Northern Trust Bank, is forecasting modest, steady growth for the U.S. economy in the second half of 2013.
McDonald says the housing market will likely continue to offset government spending weakness in the economy.
He expects about 2 percent growth in gross domestic product for 2013.
“There’s still very slow job creation, and at the end of the day, 70 percent of the economy is consumer spending,” McDonald said.
The inflation environment looks relatively benign, he said.
“We think that the Federal Reserve isn’t going to do anything to raise interest rates this year or next (year),” he said.
McDonald likes stocks over bonds and has an overweight on U.S. equities. A cyclical tilt to a portfolio should favor areas benefitting from corporate strength and exports, he said. He said the smart money is in industrial, technology and consumer discretionary sectors, while McDonald has underweights on utilities and telecommunications because they are interest rate sensitive and defensive.
McDonald says three themes are underpinning his investment strategies:
- Things are becoming more normalized. The economy is starting to grow a little more on its own and people are investing on analysis versus just in or out of the market.
- Focusing on economies that are structurally sound – the United States and emerging economies – at the expense of European and Japanese economies.
- He expects interest rates to stay low for a long time. As a result, “We want to continue to try to find yield wherever possible,” he said. Corporate debt, high-yield debt and global real estate are good options, he said.