BlackRock Investment Institute Videos

Market take

Weekly video_20260526

Beata Harasim

Senior Investment Strategist

BlackRock Investment Institute

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CAPITAL AT RISK. MARKETING MATERIAL.

Opening frame: What’s driving markets? Market take

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Title slide: The need to diversify diversifiers

Surging long-term bond yields are reinforcing one of our key views: traditional portfolio hedges are less reliable in today’s macro regime. We think investors need a Plan B — built around more unique sources of return.

1: Traditional diversifiers under pressure

Long-term government bond yields have surged again, with U.S. 30-year Treasury yields reaching their highest levels in roughly two decades.

That matters because government bonds have historically helped cushion portfolios when risk assets fall. But that role is being tested. Since the onset of the Middle East conflict, U.S. Treasuries have come under further pressure as investors have focused on sticky inflation, energy supply risks and persistent fiscal deficits.

Gold, often viewed as an inflation hedge, has also fallen over this period. That reinforces our view that the old playbook for diversification is becoming less reliable.

2: A shifting macro regime

Why is this happening? We think markets are adjusting to a new macro regime shaped by mega forces.

Geopolitical fragmentation is increasing the risk of supply shocks. Persistent fiscal deficits are putting upward pressure on long-term borrowing costs. And the AI buildout is driving major investment demand.

Together, these forces point to higher-for-longer inflation and interest rates than markets were used to before the pandemic. That is why we prefer short- and medium-term U.S. government bonds over long-term bonds. We also continue to like inflation-linked bonds on strategic horizons over five years or more.

3: Building a plan B

We still stay pro-risk, supported by solid corporate earnings and the AI theme. Strong earnings growth has helped equities absorb the drag from higher rates so far.

But at the total portfolio level, we think investors need broader diversification sources. We favor idiosyncratic return streams, especially hedge funds and private markets, where returns are less dependent on broad stock and bond market moves.

Outro: Here’s our Market take

Traditional portfolio diversification is being challenged as long-term bond yields rise and old safe havens prove less reliable. We think investors need a Plan B — using broader sources of return while staying pro-risk on solid earnings and the AI theme.

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

BlackRock Bottom Line: 2024 Global outlook

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

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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.