BlackRock Investment Institute Videos

Weekly video_20260309
Natalie Gill
Senior Portfolio Strategist, BlackRock Investment Institute

Opening frame: What’s driving markets? Market take

Camera frame

The Middle East conflict is causing energy supply disruptions and price shocks with very different regional market effects. It adds to inflation risk and reinforces our long-held view that we are in a world shaped by supply. For now, we see energy supply disruptions lasting weeks – not months – and don’t currently see any reason to push back on current pricing.

Title slide: Gauging the Mideast supply shock

1: Upending market trends

The conflict is upending recent trends and well-established relationships in global markets. International equities had outperformed U.S. stocks this year – but that leadership has reversed abruptly.
Similarly, prices of liquified natural gas – or LNG – are rocketing upward in regions that rely heavily on imports such as Europe, but staying mostly put in the U.S.
Long-term U.S. Treasuries declined, whereas they would often rally and cushion equity market selloffs in past geopolitical crises. This aligns with our view that we are at risk of an inflationary supply shock, rather than a classic demand-driven growth slowdown.

2: Sizing up the shock

This is a disruption at the heart of the global LNG infrastructure – very different from the Europe-centric, pipeline-driven energy crunch of 2022. Back then, LNG prices tightened through competitive bidding and stockpiling. Today, the strain on energy starts at export terminals and shipping posts. We think that Europe and parts of Asia will feel the most strain since they rely on imported LNG for industrial production.

3: A world shaped by supply

These developments fit a pattern we’ve long observed: geopolitical shocks creating supply constraints in a fragmenting world. Structurally sticky inflation remains the risk if the disruption endures. Against this backdrop, growth-inflation trade-offs become even more acute. That tension is already showing up in rising long-term bond yields and upward pressure on term premia, or the extra compensation investors demand to hold long-term bonds. Even without a prolonged closure of the Strait of Hormuz, we could see the shock upend the 'low inflation, lower interest rates' narrative that has powered markets until recently.

Outro: Here’s our Market take

The situation remains fluid, with real risks. For now, we believe the shock is likely to be short-lived. We see disruptions measured in weeks, rather than in months. We stay underweight long-term U.S. Treasuries and favor U.S. and Japanese stocks. In Europe, we like select sectors such as financials, pharma and infrastructure.

Closing frame: Read details: blackrock.com/weekly-commentary

BlackRock Bottom Line: 2024 Global outlook

Speaker: Wei Li, Global Chief Investment Strategist, BlackRock Investment Institute

Script:

Higher interest rates and greater volatility define the new regime we’re in. In turn, that’s creating greater dispersion of returns.

We think investors will benefit from taking a more active approach to portfolios as we head into next year. 

Here’s our three investment themes for 2024: number one, managing macro risk; number two, steering portfolio outcomes; and number three, harnessing mega forces.

BlackRock Bottom Line open

Title: BlackRock Investment Institute 2024 global outlook

Our first theme is managing macro risk. Production constraints mean central banks face tougher trade-offs between inflation and growth – they can’t respond to faltering growth like before. This leads to a wider set of outcomes and a more uncertain macro outlook.

We don’t think investors should wait for the macro environment to improve. Instead, they should look to neutralize macro exposures or be very deliberate about which risks they take.

Our second theme is steering portfolio outcomes. We believe the new regime rewards an active approach to portfolios. Greater volatility and dispersion of returns create space for investment expertise to shine – that involves being more dynamic with indexing and alpha-seeking strategies, while staying selective.

Our third theme is harnessing mega forces. We see five structural shifts reshaping markets and driving returns now and in the future. We think they have become important portfolio building blocks on their own.

The bottom line is: Going into 2024 in the new regime, we want to put money to work. We believe investors should take a more active approach to their portfolios and be deliberate in taking portfolio risk.