BlackRock Investment Institute Videos

Market take

Weekly video_20260615

Ehsan Khoman

Economist

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: Strong earnings key as rates stay high

The recent equity pullback has put a central market debate back into focus: can solid earnings growth offset a higher-for-longer interest rate backdrop?

1: Tech stands out

Tech looks like one of the few parts of the market capable of outrunning pressure from higher interest rates. That’s thanks to rising earnings expectations for the sector, strengthening AI capital spending and broader conviction in the AI theme. Those factors have helped offset the would-be drag from higher rates.

But whether the sector can continue to stand out depends not only on earnings growth delivering but also on investor willingness to fund the next phase of the AI buildout.

2: Competing for capital

To be sure, tech is still gathering momentum. OpenAI’s IPO filing and SpaceX’s public market debut last week highlights sustained investor appetite for AI-related assets.

But a larger pipeline of IPOs, equity issuance and financing needs competing for limited capital highlights an important reality for markets: the same forces supporting earnings growth – namely accelerating capital spending on the AI buildout – are also helping keep rates elevated.

3: Rates in focus

The challenge for investors is that earnings growth and interest rates are rising at the same time. A solid labor market and persistent inflation pressures have led investors to scale back expectations for policy. The Middle East conflict shock only added to those concerns by raising questions about the inflation outlook.

This puts the spotlight on Federal Reserve Chair Kevin Warsh’s first policy meeting as head of the central bank this week. What’s key is the communication surrounding the meeting itself, and we’re closely watching whether the Fed will reduce reliance on forward guidance. That could potentially make the Fed’s reactions a source of volatility, while also lifting term premia and keeping upward pressure on long-term yields.

Outro: Here’s our Market take

We think it’s key for investors to focus on which assets can thrive in a higher-for-longer interest rates environment. We stay pro-risk on the accelerating 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

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.