By Kate Gibson, MarketWatch

NEW YORK (MarketWatch) — U.S. stocks caved on Thursday, with the Dow industrials making a comeback of sorts from a drop of nearly 1,000 points, as Europe’s financial troubles took hold on Wall Street.

At its height, the major stock indexes were all down 8%, with the Dow Jones Industrial Average (INDEX:INDU) diving almost 1,000 points before halting its decline.

Yields on 10-year treasury notes dropped the most since September 2008 and the euro fell to a new 14-month low, below $1.26.

“The markets have an eerie feeling similar to the timeframe when Lehman went down,” said Andrew Brenner, head of emerging markets at Guggenheim Securities.

“You can go back to Goldman Sachs Friday when the market sold off. Since then the market has been prone to headline risk and looking for a reason to sell off,” said Jay Suskind, senior vice president at Duncan-Williams.

“Is the market now seeing Greece and Europe as the canary in the coal mine for us? We all know we have budget and deficit issues,” Suskind said.

The major U.S. stock indexes gave way shortly after 2 p.m. Eastern, with the Dow Jones Industrial Average (INDEX:INDU) lately off 366.69 points, or 3.4%, to 10,501.43 with all 30 components on the decline, led by Bank of America Corp. (NYSE:BAC) , off 6.9%, and Caterpillar Inc. (NYSE:CAT) , off 4.2%.

The S&P 500 Index (INDEX:SPX) dropped 41.33 points, or 3.5%, to 1,125.07, with financials and utilities down the most among its 10 industry groups.

The Nasdaq Composite Index (NASDAQ:COMP) shed 77.93 points, or 3.2%, to 2,324.36.

More than 10 stocks were falling for every one on the rise on the New York Stock Exchange, where 1.7 billion shares had traded as of 3.10 p.m. Eastern. Composite volume topped 8.1 billion.

Exposed

As Greece looked to a $144 billion rescue from the International Monetary Fund 15 other nations that use the euro to help cover its debt, some questioned if some of the nations helping foot the bill — namely Portugal and Spain — would eventually need to be bailed out as well.

U.S. economic data was mixed, while retailers reported April sales slowed from March’s robust gains, with a majority of those reporting missing expectations.

Gap Inc. (NYSE:GPS) was among the underperformers, its shares down 6.6% after the apparel chain reported same-store sales dropped 3%.

Abercrombie & Fitch Co. (NYSE:ANF) shares declined 11% after the teen-clothing seller after its same-store sales fell 7%.

Ahead of Friday’s jobs report for April, the Labor Department reported initial claims for unemployment benefits fell by 7,000 last week to 444,000.

The government data is expected to show the U.S. economy added between 189,000 to 200,000 jobs last month, while the rate of unemployment held at 9.7%.

Separately, the Labor Department on Thursday said U.S. productivity climbed 3.6% in the first quarter.

In Washington, Treasury Secretary Timothy Geithner and former Treasury Secretary Henry Paulson pitched financial reform, telling a fact-finding panel the economic crisis came in large part because regulators didn’t have the power to limit risk.

Sign at the office door of Dr. Jack Cassell, a Mount Dora urologist. (Photo by Deirdre Lewis / April 1, 2010)

MOUNT DORA — A doctor who considers the national health-care overhaul to be bad medicine for the country posted a sign on his office door telling patients who voted for President Barack Obama to seek care “elsewhere.”

“I’m not turning anybody away — that would be unethical,” Dr. Jack Cassell, 56, a Mount Dora urologist and a registered Republican opposed to the health plan, told the Orlando Sentinel on Thursday. “But if they read the sign and turn the other way, so be it.”

The sign reads: “If you voted for Obama … seek urologic care elsewhere. Changes to your healthcare begin right now, not in four years.”

Estella Chatman, 67, of Eustis, whose daughter snapped a photo of the typewritten sign, sent the picture to U.S. Rep. Alan Grayson, the Orlando Democrat who riled Republicans last year when he characterized the GOP’s idea of health care as, “If you get sick, America … Die quickly.”

Chatman said she heard about the sign from a friend referred to Cassell after his physician recently died. She said her friend did not want to speak to a reporter but was dismayed by Cassell’s sign.

“He’s going to find another doctor,” she said.

Cassell may be walking a thin line between his right to free speech and his professional obligation, said William Allen, professor of bioethics, law and medical professionalism at the University of Florida’s College of Medicine.

Allen said doctors cannot refuse patients on the basis of race, gender, religion, sexual orientation or disability, but political preference is not one of the legally protected categories specified in civil-rights law. By insisting he does not quiz his patients about their politics and has not turned away patients based on their vote, the doctor is “trying to hold onto the nub of his ethical obligation,” Allen said.

“But this is pushing the limit,” he said.

Cassell, who has practiced medicine in GOP-dominated Lake County since 1988, said he doesn’t quiz his patients about their politics, but he also won’t hide his disdain for the bill Obama signed and the lawmakers who passed it.

In his waiting room, Cassell also has provided his patients with photocopies of a health-care timeline produced by Republican leaders that outlines “major provisions” in the health-care package. The doctor put a sign above the stack of copies that reads: “This is what the morons in Washington have done to your health care. Take one, read it and vote out anyone who voted for it.”

Cassell, whose lawyer wife, Leslie Campione, has declared herself a Republican candidate for Lake County commissioner, said three patients have complained, but most have been “overwhelmingly supportive” of his position.

“They know it’s not good for them,” he said.

Cassell, who previously served as chief of surgery at Florida Hospital Waterman in Tavares, said a patient’s politics would not affect his care for them, although he said he would prefer not to treat people who support the president.

“I can at least make a point,” he said.

The notice on Cassell’s office door could cause some patients to question his judgment or fret about the care they might receive if they don’t share his political views, Allen said. He said doctors are wise to avoid public expressions that can affect the physician-patient relationship.

Erin VanSickle, spokeswoman for the Florida Medical Association, would not comment specifically.

But she noted in an e-mail to the Sentinel that “physicians are extended the same rights to free speech as every other citizen in the United States.”

The outspoken Grayson described Cassell’s sign as “ridiculous.”

“I’m disgusted,” he said. “Maybe he thinks the Hippocratic Oath says, ‘Do no good.’ If this is the face of the right wing in America, it’s the face of cruelty. … Why don’t they change the name of the Republican Party to the Sore Loser Party?”

The proportion of Americans who can’t find work is likely to “remain elevated for an extended period,” Treasury Secretary Timothy F. Geithner, White House budget director Peter Orszag and Christina Romer, chairman of the Council of Economic Advisers, said in a joint statement. The officials said unemployment may even rise “slightly” over the next few months as discouraged workers start job-hunting again.

“We do not expect further declines in unemployment this year,” the officials said in testimony prepared for the House Appropriations Committee. They predicted the economy would add about 100,000 jobs a month on average — not enough to bring the jobless rate down substantially.

Today’s projections are in line with the 10 percent average unemployment forecast for this year in last month’s budget plan. Christopher Rupkey, chief financial economist at Bank of Tokyo Mitsubishi UFJ Ltd. in New York, said the administration’s language risks damping expectations for a recovery.

“They need to work on the message, and right now the message is that there is not a lot to be hopeful about,” Rupkey said. “Warning about a slow jobless recovery can help make it a reality.”

Growth Outlook

Geithner, Orszag and Romer reiterated the administration’s forecast that the economy would grow 3 percent this year, as measured by comparing fourth quarter growth in gross domestic product. Growth is projected to rise to 4.3 percent in 2011 and 2012, and inflation probably will remain low, they said.

“The worst now appears to be behind us,” the officials said. “However, the country faces significant and ongoing challenges: high unemployment, the need to build a new and stable foundation for prosperity in the years and decades ahead, and a medium- and long-term fiscal situation that could ultimately undermine future job creation and economic growth.”

The three urged Congress to pass Obama Administration job stimulus proposals including extended unemployment benefits, aid to state and local governments and tax breaks for businesses that hire new workers.

They argued tax benefits for businesses that add new workers would have a large impact in the early stages of an economic recovery.

‘Particularly Effective’

“The current situation — where for many firms the question is not whether to hire but when — is one that may make such programs particularly effective,” they said.

The officials said projected federal budget deficits, which the administration forecasts at more than $1.5 trillion for 2011 and over $751 billion for 2015, “remain undesirably high.”

“Deficits matter. Ours are too high; they are unsustainable,” Geithner said during testimony. “The American people, along with investors around the world, need to have more confidence in our ability to bring them down over time.”

The officials put the greatest blame for the high budget deficits on “years of poor decisions” during the administration of George W. Bush, citing enactment of the Medicare prescription drug benefit and income-tax cuts without corresponding budget savings to pay for them.

“If these two policies had been paid for, projected deficits — without any further deficit reduction — would be about 2 percent of GDP per year by the middle of the decade, and we would have been on a sustainable medium-term fiscal course,” they said.

Backtracking on a firm and fast campaign promise, President Barack Obama now says he is “agnostic” about raising taxes on households making under $250,000 a year, including the idea in the general tool bag needed to lower the nation’s crippling deficit.

In an interview with Bloomberg Business Week that hit newsstands Friday, Obama declared that a presidential budget commission needs all options of the table, including tax increases and cuts in such programs as Social Security and Medicare.

“The whole point of it is to make sure that all ideas are on the table,” Obama said. “So what I want to do is to be completely agnostic, in terms of solutions.”

Obama pledged repeatedly during the 2008 campaign to exempt households earning less than $250,000 a year from tax increases.

Over the course of time, the White House press secretary Robert Gibbs re-emphasized the president’s pledge, including when White House economic adviser Lawrence Summers and Treasury Secretary Timothy Geithner were mulling new taxes on the middle class last summer.

Obama also stated in the Bloomberg interview that he believes that limiting the agenda of any bipartisan advisory commission would cripple it from the start.

“What I can’t do is to set the thing up where a whole bunch of things are off the table,” Obama said. “Some would say we can’t look at entitlements. There are going to be some that say we can’t look at taxes, and pretty soon, you just can’t solve the problem.”

The Bloomberg report noted that the middle class would be the likely target of tax increases, because the administration’s budget already has targeted Americans making more than $200,000 with its proposed $970 billion tax increase over the next decade.

That increase is a product of not extending former President George W. Bush’s tax cuts for the wealthy beyond 2010.

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The World Health Organization (WHO) is considering a plan to ask governments to impose a global consumer tax on such things as Internet activity or everyday financial transactions like paying bills online.

Such a scheme could raise “tens of billions of dollars” on behalf of the United Nations’ public health arm from a broad base of consumers, which would then be used to transfer drug-making research, development and manufacturing capabilities, among other things, to the developing world.

The multibillion-dollar “indirect consumer tax” is only one of a “suite of proposals” for financing the rapid transformation of the global medical industry that will go before WHO’s 34-member supervisory Executive Board at its biannual meeting in Geneva.

The idea is the most lucrative — and probably the most controversial — of a number of schemes proposed by a 25-member panel of medical experts, academics and health care bureaucrats who have been working for the past 14 months at WHO’s behest on “new and innovative sources of funding” to accomplish major shifts in the production of medical R&D.

WHO’s so-called Expert Working Group has also suggested asking rich countries to set aside fixed portions of their gross domestic product to finance the shift in worldwide research and development, as well as asking cash-rich developing nations like China, India or Venezuela to pony up more of the money.

These would also add billions in additional funds to international health care for the future — as much as $7.4 billion yearly from rich countries, and as much as $12.1 billion from low- and middle-income nations.

But the taxation ideas draw the most interest. The expert panel cites a number of possible examples. Among them:

—a 10 per cent tax on the international arms trade, “which might net about $5 billion per annum”;

—a “digital tax or ‘hit’ tax.” The report says the levy “could yield tens of billions of U.S. dollars from a broad base of users”;

—a financial transaction tax. The report approvingly cites a levy in Brazil that charged 0.38 percent on bills paid online and on unspecified “major withdrawals.” The report says the Brazilian tax was raising an estimated $20 billion per year until it was cancelled for unspecified reasons.

The panel concludes that “taxes would provide greater certainty once in place than voluntary contributions,” even as the report urges WHO’s executive board to promote all of the alternatives, and more, to support creation of a “global health research and innovation coordination and funding mechanism” for the planned revolution in medical research, development and distribution.

Click here to read the executive summary of the report.

The WHO scheme to transfer impressive amounts of money, technology, patents and manufacturing ability to the developing world in a global battle to conquer disease looks similar in many respects to the calls for huge transfers of wealth and technology that were at the heart of the just-failed U.N.-sponsored conference on lowering greenhouse gas emissions at Copenhagen.

Indeed, the volume of revenues that the experts foresee from their global indirect tax — if it should ever be approved by enough national governments — might well come close to the $30 billion annual wealth transfer that rich nations approved at Copenhagen to hand over to poor countries until 2012.

But a global health tax would go one big step further. And, as the experts point out, one trail-blazing version of their global consumer tax for medical research already exists: a germinating program known as UNITAID, which aims to battle against HIV/AIDS, malaria and tuberculosis.

UNITAID, which began in 2006 and is also hosted by WHO, is financed in part by a “solidarity contribution” levy of anywhere from $1.20 to $58 on airline tickets among a group of nations led by France, Brazil, Chile, Norway and Britain. According to the WHO experts report, it has raised around $1 billion since its inception, with 13 countries having already passed the airline tax legislation and “several” others in the process of doing so.

The idea, as with the “indirect” taxes that WHO is about to consider, is that a relatively small consumer levy, once implemented, is a low-profile and relatively painless way to create a global health-care tax system.

UNITAID’s board chairman, Philippe Douste-Blazy, a former French Cabinet Minister and currently special advisor to U.N. Secretary General Ban Ki-moon on “innovative financing for development,” is also a member of the WHO expert working group.

The global financial mechanism that the experts have been exploring is the keystone to WHO’s entire program for the transformation of the world’s health industry, which was endorsed as a “global strategy and plan of action” by the health organization’s World Assembly in May 2008.

The plan includes more than 100 specific actions across the areas of research and development, technology transfer and intellectual property rights, among others, according to an update that will also be presented to the executive board next week.

New regional and national networks for medical innovation and development are being planned in Asia, Latin America and Africa — where, for example, there will be “African-led product research and development innovation,” including delivery of drugs based on traditional medicines.

Another major effort is the transfer of technology to poorer countries to produce vaccines. One example: H1N1 flu vaccine, which is being manufactured in China, India and Thailand under licensing arrangements created under WHO auspices.

After WHO issued repeated warnings of a serious H1N1 influenza pandemic over the past two years, countries such as Britain and France ordered hundreds of millions of dollars worth of vaccine, only to decide that they were unnecessary, leading to mass cancellations of orders. WHO is reviewing how it handled the crisis.

According to the WHO update, the U.N. organization is already promoting transfers of new medical products for vaccines against rabies, even though that disease is now something of a rarity in the West.

A significant aim of the WHO effort is expanding production and distribution of remedies for what it calls “neglected diseases,” mainly meaning those that are more common in poor, underdeveloped countries than in richer ones. These include a variety of parasitic ailments, including trypanosomiasis, or sleeping sickness.

Behind all of the effort is the “persistent and growing concern,” as the expert’s paper puts it, that “the benefits of the advances in health technology are not reaching the poor,” which the paper calls “one of the more egregious manifestations of inequity.”

As with “climate change” at Copenhagen, the WHO’s experts see that health inequity as a malady that innovative and permanent forms of global taxation are just the right thing to help cure.

George Russell is executive editor of Fox News.

SAN FRANCISCO (MarketWatch) — Knowing that there can be too much of a good thing, many investors are wary about how stock and bond markets this year will follow their remarkable 2009 surge.

One thing’s for sure: This year won’t be like the last.

“We’re not going up 65% in the first nine months of this year like we did in the last nine months,” said Bob Doll, global chief investment officer of fundamental equities at investment manager BlackRock Inc.

Not that 2010 is likely to disappoint. “We’re back to an environment where the fundamentals have to come through,” Doll said. “Companies have to deliver the earnings. When it’s an earnings-driven market, there are gains but more muted gains.”

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Indeed, the biggest difference could be that stocks in 2010 are founded on tried-and-true measures — financial strength, earnings power — rather than high-octane speculation. That would favor big multinational firms in cyclical and growth industries that stand to benefit from economic improvement, namely technology, energy and industrials.

Technical and historical factors are at work as well. Sam Eisenstadt, former research chairman at Value Line Inc. and a veteran market observer, wrote in a recent MarketWatch commentary that evidence points to an above-average 2010 for stocks.

“After the first nine months of the stock market’s rally from recession lows, the average pace of the stock market’s advance clearly slowed,” he noted. “But, and this is crucial, the market tended nevertheless to continue rising.” He pegs the S&P 500 at 1320 by year-end.

The stoic and stalwart weren’t so beloved in 2009, when investors embraced higher-risk stocks and high-yield bonds. The defensive investment themes that made our list for 2009 were out of step in that respect, failing to anticipate that lower-quality holdings would be the most lucrative investments in 2009. Still, the strategies made money — with one glaring exception: Long-term Treasurys.

This year the bulls have a good chance to retain the upper hand, though not without setbacks, and investors will have to be more selective. In that light, here are 10 ways to position your portfolio through 2010:

1. Buy stocks with a global footprint

In a slow-growth environment, bigger is better. Big companies have the clout to counter adversity and capitalize on it. “Bigger” in this case also refers to companies of any size with a broad global presence. Global companies have diverse revenues and operations, which both insulates core businesses and fosters innovation and expansion.

U.S. companies in the past decade have been impressive examples of how to operate effectively overseas. Moreover, these companies are exporting their business to fast-growing emerging markets. Almost half of the revenues for companies in the Standard & Poor’s 500 stock-index (INDEX:SPX) now come from outside of the U.S.

“The demonstrated ability of S&P 500 companies to replicate their business [overseas] and earn attractive margins and returns abroad is the most important development of the decade,” wrote David Bianco, Bank of America Merrill Lynch’s chief U.S. equity strategist, in a December report.

“The global economy is going to continue to integrate,” added Gary Motyl, chief investment officer of Franklin Resources’ Templeton Global Equity Group. “Companies that have the best managements, strategies and balance sheets are going to take advantage of this.” He said Pfizer Inc. (NYSE:PFE) , is a good example. “What isn’t reflected in the stock price,” Motyl said, “is this company’s ability to move into the emerging markets.”

2. Use stock dividends as a bond substitute

Shares of companies with strong balance sheets and stable earnings growth are not only better-equipped to handle the economy’s waves, but their dividend income is a welcome alternative to the uncertainty swirling around bonds.

“Current dividend yields relative to bond yields provide an attractive opportunity for investors,” wrote Brian Belski, chief investment strategist at Oppenheimer Asset Management, in a recent research report. “A prolonged period of low bond yields may encourage investors to begin seeking alternative ways to increase income, and high-quality, dividend-paying stocks may be a solution.”

Oppenheimer’s recommended stocks fitting this bill include Johnson & Johnson (NYSE:JNJ) , AT&T Inc. (NYSE:T) , Abbott Laboratories (NYSE:ABT) and United Technologies Corp. (NYSE:UTX) .

3. Buy larger-cap index funds

Large-cap stocks lagged their small-cap and midcap counterparts in 2009, but many observers say that big firms’ time has come.

“Large, blue-chip companies are the last remaining pocket of undervaluation,” said Keith Goodard, co-manager of Capital Advisors Growth Fund (FUND:CIAOX) . “A basket of blue-chip companies with a 3% to 4% dividend is not a bad place to be.”

If larger-company U.S. stocks outperform small-caps, then shareholders could do well holding index mutual funds and exchange-traded funds that track plain-vanilla, large-cap benchmarks such as the S&P 500, the Dow Jones Industrial Average (INDEX:INDU) and the S&P 100 (INDEX:OEX) .

Many S&P 500 companies, for example, provide global exposure, high-quality earnings, seasoned management and attractive dividends — attributes that investors could increasingly value as the year unfolds.

“We believe that 2010 will be another positive year for stocks, and we established a 2010 price target of 1,300 for the S&P 500,” Oppenheimer’s Belski said. That would mean a gain of almost 14% for the index from Friday’s close of 1145 — a standout return for the market.

4. Stick with technology stocks

Technology funds were the best-performing U.S. sector in 2009, up about 63%, and technology is again the largest S&P 500 component.

That’s a cautionary note, but the sector’s earnings prospects are nonetheless strong. S&P analysts are among those upbeat on tech stocks. “The sector is poised to benefit from a healthier global economy, a notable PC replacement cycle and considerable international exposure,” the analysts noted in a recent report.

“They’ve got robust balance sheets, phenomenal free cash flow, and while the stocks have done well and valuations aren’t as cheap, there is room for them to outperform,” BlackRock’s Doll said of the tech sector. He favors computer software and services companies over hardware and semiconductor firms, namely Microsoft Corp. (NASDAQ:MSFT) , IBM (NYSE:IBM) and Oracle Corp. (NASDAQ:ORCL) .

5. Plug into the energy sector

Energy stocks have been on a tear so far this year. Energy-sector mutual funds are up almost 7% on average, on top of a 46% gain in 2009, according to investment researcher Morningstar Inc. The energy bulls are banking on a continuing global recovery and strong emerging-market demand, and strategists at Bank of America Merrill Lynch are squarely in that camp.

“Energy is our preferred global recovery play” and could be the year’s best-performing sector, depending on oil prices, Merrill strategists wrote in a recent research report.

S&P analysts are also bullish, particularly for companies in the integrated oil and gas industry. But it’s a tempered call that hinges in part on the global economy making a smooth transition from one that has relied on government stimulus to one that is earnings-driven. S&P’s favorite energy stocks include Chevron Corp. (NYSE:CVX) , Exxon Mobil Corp. (NYSE:XOM) and Superior Energy Services Inc. (NYSE:SPN)

6. Build on the industrials sector

S&P analysts also are upbeat on the industrials sector — another economic recovery bellwether.

“We recommend overweighting this sector, as we think the global economy will be stronger in 2010 than in 2009, and that this will be reflected in this cyclical sector’s profitability,” strategists wrote in a December report. “Also, from a valuation standpoint, we believe the sector offers better value than other economically sensitive areas.” Two industrials stocks S&P likes are Fastenal Co. (NASDAQ:FAST) and C.H. Robinson Worldwide Inc. (NASDAQ:CHRW)

At Oppenheimer, Belski favors industrials that tend to benefit in the early stages of an economic recovery, including building products and air freight. He also likes areas of the sector that profit from international growth, such as industrial machinery, aerospace and defense and electrical manufacturing. Domestically, Belski’s research points to companies involved with infrastructure projects.

Specific stocks on Oppenheimer’s list include FedEx Corp. (NYSE:FDX) , Danaher Corp. (NYSE:DHR) , Graco Inc. (NYSE:GGG) , Roper Industries Inc. (NYSE:ROP) , Pentair Inc. (NYSE:PNR) , Emerson Electric Co. (NYSE:EMR) and (NYSE:WM)

7. Take the M&A train

Companies in solid financial shape, flush with cash and little debt, are poised to take advantage of weaker rivals. They can grow earnings and market share organically or buy their way in; with many acquisition targets still priced attractively, corporate managements likely will choose the latter path.

“Companies are taking their business to where the opportunities are,” said Rob McIver, co-manager of Jensen Portfolio (FUND:JENSX) . “They’re setting up shop to expand their overseas presence or buying competitors through sensible acquisitions.”

“It’s an opportunity to leapfrog the competition,” added Templeton’s Motyl. “They’re positioning themselves for the next 10 or 20 years.”

“Mergers and acquisitions will come back to life,” said Steven DeSanctis, small-cap strategist at BofA Merrill Lynch, in a recent research report. He’s particularly bullish on M&A prospects for the cash-rich technology, health care and industrial sectors, where acquisitive-minded companies “do not need to borrow from the credit markets or issue additional shares.”

8. Pocket the U.S. dollar

The greenback is making a comeback. PowerShares DB US Dollar Index Bullish (NYSE:UUP) , a proxy for a stronger U.S. dollar, is up more than 2% in the past month, narrowing its 12-month loss to 8%, according to Morningstar.

“We remain optimistic on the U.S. dollar longer term,” Oppenheimer’s Belski noted. “Long-term currency movements are a reflection of relative global economic growth. Since the U.S. was the first economy into trouble, we expect it to be the first to recover and we believe that dollar strength will result.”

“The dollar remains the world’s reserve currency and safe haven,” added investment strategist Gary Shilling in his 2010 outlook report, though his recommendation is based on a bearish view that dollar strength will stem from global economic weakness.

9. Avoid long-term government bonds

Before the year is out, many analysts expect the Fed to whisk away the punchbowl and hike short-term interest rates. Already the markets are saying the U.S. government is keeping rates artificially low, as telegraphed through higher yields and corresponding lower prices for longer-dated Treasurys.

Long-term government funds were the worst-performing bond category of the past 12 months, down 14%, and experts don’t expect any improvement in the year ahead.

“Returns on long-term Treasurys … will be modestly negative,” BofA Merrill Lynch investment strategists said in a recent report. The firm sees the 10-year Treasury yielding 4.25% and the 30-year at 4.95% this year.

Merrill strategists recommend rotating out of U.S. Treasurys into U.S. investment-grade corporate credits. In addition, materials stocks and emerging-markets tend to outperform when Treasury yields rise, the firm said.

“All of the smoke signals we’re hearing from the various Fed presidents points to the unwinding of the liquidity we have put into the system; it’s just a question of when,” added Marilyn Cohen, president of Envision Capital Management, a Los Angeles-based bond specialist.

Cohen advised investments in shorter-term bonds, with a goal of reinvesting at higher yields later. She added: “Anybody who doesn’t read these smoke signals is going to be very sad.”

10. Embrace emerging-markets consumers

“The engine of growth has shifted to the emerging markets,” said Jim Awad, managing director of New York-based investment firm Zephyr Management. “You want to make emerging markets a core investment position — bigger than it’s ever been.”

Of course, emerging markets have enjoyed a tremendous run. Diversified emerging markets funds were up 74% in the year through Jan. 7 and averaged 15% annualized gains over five years, according to Morningstar.

While caution is in order from a valuation perspective, emerging markets are still eye-catching, especially if you focus on these regions’ growing middle class.

Rising living standards are prevalent across the developing world. Analysts at BofA Merrill Lynch suggest that investors tap into emerging-market consumers through shares of large-cap emerging-market financial and consumer-related stocks, as well as U.S., European and Japanese multinationals. A diversified emerging-markets ETF is worth considering, such as iShares MSCI Emerging Markets (NYSE:EEM) or Vanguard Emerging Markets Stock (NYSE:VWO) .

Another avenue to the emerging-market consumer, the Merrill analysts said, are energy providers and ETFs with exposure to U.S. energy and global energy stocks. Two examples: Energy Select Sector SPDR (NYSE:XLE) and iShares S&P Global Energy (NYSE:IXC) .

As Jose Costa Buck, manager of T. Rowe Price Latin America Fund (FUND:PRLAX) , noted in a recent report to shareholders about Brazil, the region’s largest economy: “Sensible economic, political and regulatory reforms have resulted in years of low inflation, economic stability and income growth that have brought millions of new consumers to the marketplace.”