Our views for 2018

By BlackRock Investment Institute

We believe the current economic expansion can last longer than many people think, but see less room for upside growth surprises to lift markets. We see the Fed pressing slowly ahead with normalisation, with markets sensitive to any early signs of other major central banks shifting policy gears. We believe investors will still be compensated for taking risk in 2018 – but will receive lower rewards.


What’s in store for 2018? We debated the prospects for inflation, the sustainability of low volatility, the market impact of elevated political risks and a range of other topics at our 13th semi-annual Investment Outlook Forum in mid-November. 2018 brings a number of political risks. Foremost are negotiations over the future of the North American Free Trade Agreement (NAFTA), which we see as a barometer for a new “America First” stance that could upset the global free-trade regime. Mexico, whose fortunes are closely tied to the future of NAFTA, tops a long list of emerging market elections.

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Events to watch in 2018

Events to watch in 2018

Source: BlackRock Investment Institute, November 2017.
Notes: The Fed and ECB meetings are those accompanied by press conferences. The BoJ events shown are followed by the publication of the central bank’s outlook report.


We see a synchronised global expansion with room to run in 2018 and beyond, albeit with less scope for upside growth surprises. We see inflation making a modest comeback, led by the US, and expect the Federal Reserve to make slow but steady progress in normalising policy. US tax cuts could boost near-term growth and quicken the Fed’s pace. The eurozone and Japan are behind on policy normalisation, but their next steps in this direction will likely come into greater focus. We expect rewards for taking risk to be more muted across the board in 2018.

Outlook debate

We believe low market volatility can persist amid the stable economic backdrop. Yet even a small uptick in vol could upend leveraged income strategies and spook markets. We see few signs of leverage building in the financial system. The exception is China, where we believe much-needed economic reforms risk slowing growth and triggering temporary credit crunches. Geopolitical risks abound, ranging from North Korea's nuclear program to proxy wars in the Middle East. We lay out a framework for assessing whether localised risks can morph into systemic ones.

Market views

We prefer equities over credit given tight spreads, low yields and a maturing cycle. We see rising profitability powering equity returns, especially in Japan and emerging markets, but earnings growth could wane. We like financials and tech. The steady expansion supports the momentum style factor, albeit with potential reversals; we see other factors as diversifiers. Plentiful global savings and a thirst for income should cap long-term bond yields. We prefer inflation-protected over nominal bonds in the US, and an up-in-quality stance in credit.

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Global Chief Investment Strategist, BlackRock Investment Institute
Richard Turnill is Global Chief Investment Strategist for BlackRock. He was previously Chief Investment Strategist for BlackRock’s Fixed Income and active ...
Head of Economic and Markets Research
Chief Multi-Asset Strategist
Chief Equity Strategist
Chief Fixed Income Strategist

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