The common theme in last week's important economic data: The U.S. recovery is happening, though it's uneven.
As I write in my new weekly commentary, while last week's better-than-expected third quarter gross domestic product (GDP) and October's jobs report were consistent with a rebound in manufacturing, consumption continues to remain weak and the United States is still not creating jobs at a fast enough pace to put any real upward pressure on wages.
With no end to this uneven recovery in immediate sight, we're likely to see more of the same in the first part of 2014. As next year kicks off, I expected continued slow but improving growth, muted spending and low inflation, all accompanied by slowly grinding higher real interest rates.
And it's the latter that I'd be most cognizant of when structuring a portfolio heading into the New Year. As such, the big takeaway for investors from last week's data is to remain cautious on interest-rate sensitive assets.
While I still don't expect long-term yields to "melt up," I continue to believe that rising real rates will represent a big obstacle for certain asset classes. In particular, I continue to advocate that investors consider underweighting the assets that are most sensitive to rising real rates:
• U.S. Treasuries and Treasury Inflation Protected Securities (TIPS), as I wrote last week.
• Bond-like stocks such as the consumer staples and utilities sectors.
• Gold. While I continue to believe that gold has a place in a portfolio, rising real rates are a headwind for the precious metal.
The current environment - just enough economic growth and suppressed wages - has allowed corporate America to churn out record profits, a factor helping to support this year's big rally in stocks. I believe this will continue into 2014, although higher rates suggest that any gains are likely to be accompanied by more volatility.