The latest economic data from the US indicates that slow growth has a silver lining: low inflation. According to Russ Koesterich, chief investment strategist at BlackRock, beyond a few commodities-related areas, significant inflation does not exist.

Koesterich believes that, while the economic landscape is not ideal, as long as the US stays out of recession, the environment should be “decent” for both stocks and credit-related fixed income sectors. He reports that investors have continued to bid stocks higher in recent weeks, and US equities are up around 4 per cent so far for the year, as are markets in Europe and much of Asia. However, some of this can be attributed to temporary enthusiasm and seasonal strength and BlackRock expects stocks to experience tougher conditions going into February.

“A continuation of 2 per cent economic growth combined with low inflation is not a bad environment for stocks. Equity valuations remain reasonable (particularly outside the US), so we would view any near-term volatility as a potential buying opportunity,” Koesterich said in a statement.

Turning to fixed income credit sectors, Koesterich predicts that, while gains are unlikely to match the pace of those seen in 2012, a slow and steady recovery should keep default rates low and should support this area of the market. He says that the story is pretty much the same for municipal bonds, which look fundamentally attractive when compared to treasuries, particularly on an after-tax basis.