Market Updates

In a world influenced by structural forces and supply dynamics, uncertainty for the Fed and markets is heightened. This is why BlackRock relies on new data rather than Fed signals to assess the policy path.

For a long time, BlackRock has analyzed the world through the lens of mega forces, or significant structural shifts. These forces not only explain long-term macro and market outcomes but also have immediate implications. Geopolitical fragmentation is one of the five mega forces they monitor.

In 2024, we witnessed two distinct narratives unfold. Initially, cooling inflation and robust corporate earnings supported a positive risk appetite.
However, later in the year, resurging inflation emerged, disrupting market sentiment. While BlackRock maintain an overweight position in U.S. stocks, they remain prepared to adapt to changing market conditions.

Robust U.S. economic expansion and corporate earnings have bolstered risk sentiment, propelling stocks to record levels, despite notable increases in bond yields. BlackRock anticipates that earnings performance will be crucial in meeting elevated market expectations, particularly following recent data revealing persistent inflation concerns that unnerved investors.

The working-age populations in developed markets (DMs) are dwindling, contrasting with the growth observed in emerging markets (EMs). This trend adversely affects economic growth in DMs while bolstering growth prospects in EMs—a divergence that, according to BlackRock, is widely evident in asset valuations.

Yields surged as central banks raised rates to unprecedented levels, marking the onset of a new era for fixed income investments. BlackRock anticipates continued elevated yields despite potential rate cuts. They believe central banks will maintain higher rates for an extended period compared to pre-pandemic levels due to ongoing supply constraints.

Last week’s central bank actions buoyed market sentiment, prompting BlackRock to maintain a pro-risk stance in their tactical outlook for the next six to twelve months as Q2 begins. Despite lingering concerns about persistent U.S. inflation and diminishing expectations of Federal Reserve rate cuts, they observe that stock markets are resilient.

The upcoming Federal Reserve and Bank of Japan (BOJ) meetings, along with recent data, draw attention to the macroeconomic landscapes of the U.S. and Japan. While U.S. markets reflect optimism amid cooling inflation, BlackRock anticipates that positive risk appetite will remain largely unchallenged in the months ahead.

BlackRock is closely monitoring how the low-carbon transition is impacting investment returns, recognizing it as a significant force shaping the market landscape. They anticipate potentially market-moving developments in three key areas this year.

Focusing on details and staying adaptable to capitalize on opportunities in the evolving environment are fundamental principles guiding investors’ approach. While BlackRock previously favored investment-grade credit, they are now considering fixed income investments where spreads have not tightened as significantly. They continue to express interest in private credit.