The Japanese market experienced a major sell-off Thursday, prompting many investors to ask me for an update on my view of Japanese stocks.

The bottom line: I wouldn’t rush to sell Japanese equities. I continue to advocate a market weight to Japan for two reasons.

1. The sell-off was technical. Based on my team’s analysis, Thursday’s drop in the Nikkei and TOPIX indices was driven by a spiral of profit taking from retail investors and hedge funds, rather than a change in Japanese fundamentals.

2. What matters is Japanese stocks’ performance over the long term. The Japanese market may experience more losses this week, but Japanese stocks are up significantly year to date and over the last 12 months. In addition, they are

"What worries you the most?" "What keeps you up at night?" I get these questions a lot from investors looking for insight into what might cause the next market correction. These questions are even more in focus now, given the drop in global markets that we witnessed on Thursday.

As I've said before, the global equity market faces a number of risks. However, the risks I worry about most are those that aren't completely reflected in relevant asset prices. In other words, if these scenarios occur, investors aren't being compensated for any resulting violent market reaction. Here's a look at four such risks.

1. The risk of a U.S. slowdown -- not discounted in U.S. valuations. While U.S. valuations currently look reasonable, they're predicated on a U.S. economy growing at around 2% to 2.5%. The risk of slower growth is not priced into the market. If U.S.

There's certainly no shortage of things to worry about right now related to the U.S. economy. But one thing we're not too worried about right now: inflation. Not only is inflation low, but the latest numbers show it's actually falling. And as I write in my commentary this week, inflation is unlikely to become a problem in the United States for at least another 12 to 18 months. Why? There are a number of headwinds keeping U.S. prices low in the near term.

These include ongoing anemic wage growth and continued tepid bank lending, both of which I wrote about in a post on inflation earlier this year. Plus, while the U.S. economy is expanding, recent economic reports suggest growth has softened this quarter. One other factor has also been helping to keep prices down: greater U.S. energy production. The surge in domestic natural gas and oil

With global equities up more than 25% since their bottom last June, many investors are wondering: "Is it too late to move cash from the sidelines? Should I wait for a pullback?" My answer to both questions: no, with a caveat. As I write in my latest Market Perspectives piece, while stock prices aren't yet in a bubble, some parts of the market do look more expensive than others. That's why I advocate that investors, especially those just starting to dip their toes in, focus on three areas of the market that look reasonably priced.

Certain International Markets: With investors paying a big premium today for safety, the U.S. market looks somewhat stretched compared to its international peers. As such, I'd be more hesitant to commit a lot of new capital there. Instead, I'd focus on other parts of the world where valuations are lower.

Among emerging

As a number of market watchers have pointed out recently, high yield doesn't look so junky anymore. High-yield spreads are historically tight, at levels not seen since the fall of 2007 as the chart below shows, meaning there's currently a much smaller difference in yield between a high-yield bond and a comparable Treasury. At the same time, some high- yield prices have reached all-time highs. In other words, investors aren't being rewarded that much for holding high yield, traditionally viewed as a risky asset class.

(click to enlarge)

The chart above shows the Barclays U.S. Corporate High-Yield Average OAS through March 13, 2013. OAS stands for option-adjusted spread, or the amount by which a bond's yield exceeds the yield of a similar duration Treasury when accounting for any optionality embedded in the bond.

Does this mean it's time for investors to abandon high yield? I continue to

One beneficiary of the 2013 U.S. stock market rally: defensive sectors. Until recently, classic defensive sectors like utilities, healthcare, and consumer staples outperformed as investors were just starting to dip their toes back into stocks focused on those parts of the market many considered safer and less volatile. But, as I wrote in my latest weekly commentary, over the past few weeks there has been some evidence that this is starting to change.

Utilities are down sharply in May, while healthcare and consumer staples companies are also shifting toward weaker performance. At the same time, we've seen better performance from energy, industrial, materials and technology firms, all of which are more cyclical in nature. In other words, the real Great Rotation may just be a shift to cyclical from defensive sectors rather than a move to stocks from bonds.

The shift isn't just a reflection of

Emerging markets' underperformance so far this year hasn't spread to the frontier. While emerging market equities have underperformed developed world stocks recently, equities in "pre-emerging," or frontier, markets have actually outperformed both their developed and emerging world counterparts. But it's not too late to explore the frontier. Here are three reasons why investors should consider having a small strategic allocation to equities in the pre-emerging world.

1. Valuations: Despite their outperformance, frontier markets still appear to be good bargains. According to my team's research, frontier markets -- as represented by the MSCI Frontier Markets 100 Index -- were recently trading at a price-to-book ratio of around 1.2, below the 1.6 ratio of the MSCI Emerging Markets Index. And while firms in frontier markets are less profitable than emerging market companies, frontier stocks look inexpensive even when this difference in profitability is accounted for.

2. Growth: Frontier valuations also

Executive Summary

Consumers continue to surprise. Despite significant fiscal drag and the fact that the pace of the US recovery remains below par, faster job creation, coupled with a more manageable debt burden, has allowed consumption to remain remarkably resilient. And as consumers continue to pay down debt - a process known as deleveraging - we would expect further improvement in the household sector. That, in turn, should help support economic growth and equity markets.

However, the longer term story is very different. Put simply, we don't expect US personal consumption to revert back to its long-term average. While a lower debt burden, rising home prices and a normalization in the US labor market will lead to faster consumption, several factors suggest that, even when the consumer deleveraging is complete, household consumption patterns are likely to look different. These include:

1. Much of the multi-year boom in consumption was fueled

Last week, my colleague Daniel Morillo wrote that investors would be remiss in writing off Reinhart and Rogoff's larger body of work merely because of a spreadsheet error in the economists' widely cited paper on the relationship between economic growth and debt. In my opinion, both investors and policy makers would also be remiss in writing off the influential paper itself. While Reinhart and Rogoff have publicly admitted mistakes in their methodology, their paper's basic conclusion still holds: Excessive government debt is likely to be an impediment to a country's growth.

In fact, their major finding that economic growth fell by about 1% when gross government debt-to-GDP was high has been corroborated by several other studies. This historical association between excessive debt and slower growth has three important implications for the future of the U.S. economy and market.

1. The United States is in the Reinhart

Though last Friday's better-than-expected payroll report was a relief for those worried about another springtime swoon, it also showed that monthly job creation has barely budged in two years and wage growth remains tepid. In other words, the report provided more evidence that the labor market is still only gradually improving and confirmed my expectation of slow U.S. economic growth in 2013.

However, as I write in my latest weekly commentary, this isn't necessarily bad news for U.S. stocks. Here are two reasons why.

1. Economic growth is just about fast enough to provide some support to corporate top-line growth. At the same time, slow growth is holding down costs and supporting corporate profitability. A slow economy means that the two big input costs - wages and capital - remain historically cheap.

2. With job creation stuck in second gear, the Federal Reserve is likely to keep monetary conditions

Though U.S. inflation likely won’t be a problem until 2014 and beyond, it’s not too early for investors to start implementing long-term inflation hedges. But with so many possible inflation fighting investments out there, I continue to get lots of questions from clients and readers alike about the various protection strategies.

In the sixth of my ongoing series of posts dedicated to questions I receive, I’ve compiled some of these queries, along with my answers. If you have an investing-related question you’d like me to answer, please post it in the comments section below. Also, you can check out earlier installments here.

Q: Is gold no longer an inflation hedge?

A: Gold certainly can be an inflation hedge, and it has worked in the past. Obviously, one of the reasons gold has been weak of late is that people are becoming less concerned about inflation. Now,

While the sell-off in gold has dominated headlines lately, another commodity -- oil -- has also experienced price declines in recent months. The main U.S. benchmark for crude prices is down roughly 5% from a February peak. But despite this drop, here are four reasons why I'm still a fan of energy stocks.

1. The Outlook for Oil Prices: While the price of oil has slid in recent months, it's starting to inch higher and is currently up significantly from its April low of $85 a barrel. Looking forward, given that expected growth in oil demand is in line with likely new production, I expect oil prices to remain in a stable range between the high $80s and the mid-$90s -- absent a Middle East supply shock, which would arguably drive prices higher.

2. Cheap Valuations: Though range-bound oil might not be that exciting, it could be enough

In late 2011, I introduced the concept of investing in the CASSH countries – Canada, Australia, Switzerland, Singapore and Hong Kong. These smaller, developed countries exited the financial crisis with less debt and healthier labor markets than their larger developed counterparts, and looked relatively cheap, trading at or below the average valuation of other developed markets.

The theme did well in 2012. Last year, on average, an equally weighted basket of these countries outperformed a broad global equity benchmark by roughly 5% in dollar terms.

But while the theme worked well last year, I’m no longer advocating it considering the uneven performance among the countries in 2013. Some of the countries are looking expensive and or experiencing changing fundamentals.

Valuations: Australian equities, for instance, look expensive compared to those of other developed markets, a valuation that seems unjustified considering not only Australia’s cooling growth but also the declining

Of all the investment topics I've discussed with clients, whether to invest in gold usually elicits the most divergent opinions. As an investment that is almost impossible to value, people's views on gold are often more a matter of philosophy than empirical fact. But for better or worse, following the most violent sell-off in years, gold's role in a portfolio is back in focus.

From the close on April 9 through the close on April 15 gold prices sank by more than 17%. Since April 15, gold prices have stabilized, with some evidence of fundamental buying entering the market. Investors unnerved by the sell-off are asking if this is the time to sell, while those who have been waiting for an opportunity to get into the market are asking if this is the right time to buy. Here's my take:

1. Talk of value in the gold market is meaningless

As I've mentioned before, although emerging markets have gotten off to a poor start in 2013, I still expect them to outperform developed markets this year thanks to cheaper valuations and more attractive fundamentals, including faster growth. But while I prefer emerging markets to developed ones, I understand that not all investors are willing to embrace emerging market equities considering the stocks' underperformance so far this year.

The good news, however, as pointed out in a recent commentary from the BlackRock Global Allocation Team is that investing directly in emerging markets isn't the only way to access growth in the emerging world. In fact, because where a company is headquartered doesn't necessarily indicate where it generates the bulks of its revenues. Investors can access the emerging market consumer through more traditional investments, like certain global sector stocks and developed world equities. So which global sectors and developed markets

Monday's events in Boston were a terrible tragedy. The loss of life was devastating and all of us at BlackRock are praying for the city today. For investors, the news was a tragic reminder that markets still face unknown risks from terrorism and geopolitics, especially considering that there are more than a few trouble spots in the world (the Korean peninsula and Syria, to name just two).

In my recent spring outlook piece, I included such "unknown unknowns" as a scenario that could potentially spark a market reversal.

The explosions at the Boston Marathon shortly before the U.S. market close unnerved investors who were already digesting weaker-than-expected Chinese and U.S. growth numbers. All three major U.S. indices tumbled, with the Dow suffering its worst one-day point drop since November.

Despite Monday's tumble, markets remain vulnerable to shocks - geopolitical as well as economic. While volatility spiked on

Earlier this month, when I looked back at how my first-quarter calls fared, I promised I’d provide more updates to my 2013 outlook now that the second quarter has begun.

In a new piece, “What’s Next: The Critical Answers”, I do just that. In this outlook update, my fellow authors – Jeff Rosenberg, BlackRock’s chief fixed income investment strategist, and Peter Hayes, the head of the firm’s municipal bonds group – and I are answering common questions we’re hearing from investors. Here’s a condensed version of this Q&A.

Q: Will US stocks continue to climb?

A: Given that corporate fundamentals remain strong and US stocks appear cheap relative to bonds, stocks are likely to move higher this year. That said, economic data hasn’t kept pace with the advances, and the US economic environment is likely to get tougher this quarter. That means

In the 1930s, Great Britain, France, and the United States tried to stimulate their economies by competitively devaluing their currency in what's now known as "a currency war." With world economies once again suffering from a downturn, many market watchers have been weighing in recently on whether we're in the midst of another such war, where countries aim to help their export sectors and raise import prices by devaluing their currencies.

What's my take? I agree with the head of the International Monetary Fund, who back in February said that talk of a currency war is "overblown."

While the currencies of many developed countries have been weakening in recent years, this is not due to countries maliciously trying to drive down their currencies relative to those of targeted neighbors. Rather, it's merely a byproduct of central banks in the United States, the United Kingdom, and Europe going to

One of the pleasant surprises of 2012 was the rapidity with which the housing market recovered. That trend has remained in place thus far this year. According to the S&P/Case-Shiller Home Price Index, U.S. home prices are now up more than 8% year over year, the fastest pace of growth since before the housing bubble burst. This jump in home prices has many investors asking: "Are we already back in another housing bubble?"

I believe the answer is "no" for home prices, but the prices of homebuilding stocks are another story. Consider the following:

1. While home prices have jumped from last year, they are still way below their peak. In 2005, the median price of a new home was nearly $230,000. Today it's less than $175,000.
2. Houses are not only cheaper on an absolute basis, they are also cheaper relative to what people earn. Back

From ISM numbers to jobs reports, last week's U.S. economic data was disappointing and showed that the economy, though it's getting better, isn't recovering as fast as some had hoped. The downbeat data quickly translated into stock market weakness and raises the question: "What does this mean for the U.S. economy and market going forward?"

While I don't believe the reports suggest a recession, they do point toward a tougher economic environment in the second quarter than in the first quarter, in line with what I've been discussing in my recent blog posts and weekly market commentary. Why? Just consider two particularly troubling numbers in the reports:

1. Hourly wages are now growing at less than 2% year over year, below the rate of inflation. This means that unless consumers are willing to dip further into their already low savings, either wages need to start picking up