Room to run

11 dic 2017

Key points

  • We believe the economic expansion has more room to run than many people think. This is positive for equities and emerging markets.
  • Commodities fell, and short-term U.S. yields climbed to flatten the yield curve further. The UK and EU Brexit talks moved on to key trade issues.
  • The Fed is widely expected to lift rates a quarter percentage point. Japan’s quarterly tankan survey should show strong corporate sentiment.

We believe the synchronized global economic expansion has plenty of room to run in 2018 and beyond – more than many investors think. We like equities and see emerging markets (EM) at an earlier stage of expansion, boding well for EM assets.

BlackRock Growth GPS vs. G7 consensus, 2015-2017

BlackRock Growth GPS vs. G7 consensus, 2015-2017

Sources: BlackRock Investment Institute, with data from Consensus Economics and Thomson Reuters, December 2017.
Notes: The G7 GPS shows where the 12-month consensus gross domestic product (GDP) forecast may stand in three months’ time for G7 economies. The blue line shows the current 12-month economic consensus forecast as measured by Consensus Economics.

The BlackRock Growth GPS shows that growth among G7 countries is cruising at above-trend rates. Yet consensus expectations have largely caught up with our GPS. That catch-up helped drive risk asset gains this year but now suggests less room for upside surprises to play such a role. Sustained growth amid low market volatility should underpin risk assets – especially if many investors, fearing a near-term downturn, start to embrace the upbeat outlook.

Staying power

We believe the broad global expansion is not as long in the tooth as many assume. See our 2018 Global Investment Outlook for more. Emerging markets are at an earlier stage of expansion and reinforcing the growth backdrop, benefitting from better trade activity and firmer commodity prices. We expect the EM world to weather any mild slowdown in China. The U.S. may soon receive a decent dose of fiscal stimulus from tax cuts. European economies are posting solid growth but have plenty of lingering spare capacity that could take years longer to absorb. The Fed is normalizing policy at a gradual pace, while other major central banks are still nurturing recoveries with stimulus.

Our conviction on the expansion’s durability, coupled with still subdued inflation and low interest rates, argues in favor of risk assets. And yet 2017 will be a tough act to follow. We believe returns in many asset classes will be more muted, even as structurally lower interest rates mean equity multiples can stay higher than in the past. We believe equities offer greater upside than credit as the cycle matures. And we see more earnings upgrades next year, though a higher base of comparison will make it harder to top expectations.

We prefer equities outside the U.S., where fuller valuations are less of a drag. We are positive on EM equities due to increasing profitability and relatively attractive valuations. In developed markets, we like tech and financials – with the latter poised to benefit from U.S. deregulation. We also see this environment as positive for the momentum style factor, albeit with potential for sharp reversals. Bottom line: We see the economic expansion – and the outperformance of risk assets – having more room to run.


Dec. 13 Fed policy decision, U.S. November Consumer Price Index
Dec. 14 European Central Bank and Bank of England policy decisions; U.S. November retail sales
Dec. 15 Japan quarterly tankan survey; European Council meeting on Brexit

The Fed has primed markets for a quarter-point increase in policy rates to 1.25-1.5% this week, so attention will likely quickly turn to next year. The market is still only pricing in two rate increases in 2018. We believe the Fed will move at least three times and possibly four. The ECB will release its 2020 forecasts next week, including on inflation, that may shape future policy. We expect monetary policy divergence to be an ongoing theme supporting the U.S. dollar. The European Council is likely to approve the joint agreement between the European Union and the UK and allow Brexit negotiations to proceed to the second phase.

  • Equities wobbled, with the U.S. and Europe recovering by the end of the week but EM equities taking a hit. A slide in commodities, especially base metals, added to the pressure on EMs. Year-end profit taking likely played a role.
  • U.S. short-term Treasury yields pushed higher even as long-term yields fell, flattening the yield curve to new decade lows. The market is now pricing in two Fed quarter-point rate increases in 2018, up from just 1.5 moves a month ago.
  • The U.S. payrolls data showed solid job gains but still modest wage growth. The UK and European Union completed the first phase of Brexit negotiations, with the talks shifting to a transition deal and future trading arrangements. Global banking regulators finalized tougher post-crisis capital requirements after years of debate, ending uncertainty.

Global snapshot

Weekly and 12-month performance of selected assets


EquitiesWeekYTD12 MonthsDiv. Yield
U.S. Large Caps 0.4% 18.4% 18.0% 1.9%
U.S. Small Caps -1.0% 13.5% 11.2% 1.1%
Non-U.S. World -0.1% 23.6% 23.5% 2.9%
Non-U.S. Developed 0.1% 22.2% 22.9% 3.1%
Japan -0.4% 22.1% 19.8% 2.0%
Emerging -0.5% 31.4% 29.2% 2.5%
Asia ex-Japan -0.4% 37.0% 32.4% 2.4%
BondsWeekYTD12 MonthsYield
U.S. Treasuries -0.1% 2.2% 2.2% 2.4%
U.S. TIPS 0.0% 2.4% 2.3% 2.3%
U.S. Investment Grade 0.0% 5.9% 6.5% 3.3%
U.S. High Yield 0.0% 7.2% 8.0% 5.7%
U.S. Municipals 0.7% 5.5% 5.7% 2.3%
Non-U.S. Developed -0.8% 9.1% 8.3% 0.7%
Emerging Market $ Bonds 0.1% 9.7% 10.3% 5.3%
CommoditiesWeekYTD12 MonthsLevel
Brent Crude Oil -0.5% 11.6% 17.6% $63.40
Gold -2.5% 8.8% 6.6% $1,248
Copper -3.8% 18.7% 13.6% $6,571
CurrenciesWeekYTD12 MonthsLevel
Euro/USD -1.0% 11.9% 10.9% 1.18
USD/Yen 1.2% -3.0% -0.5% 113.48
Pound/USD -0.6% 8.5% 6.4% 1.34

Source: Bloomberg. As of December. 8, 2017.
Notes: Weekly data through Friday. Equity and bond performance are measured in total index returns in U.S. dollars. U.S. large caps are represented by the S&P 500 Index; U.S. small caps are represented by the Russell 2000 Index; Non-U.S. world equity by the MSCI ACWI ex U.S.; non-U.S. developed equity by the MSCI EAFE Index; Japan, Emerging and Asia ex-Japan by their respective MSCI Indexes; U.S. Treasuries by the Bloomberg Barclays U.S. Treasury Index; U.S. TIPS by the U.S. Treasury Inflation Notes Total Return Index; U.S. investment grade by the Bloomberg Barclays U.S. Corporate Index; U.S. high yield by the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index; U.S. municipals by the Bloomberg Barclays Municipal Bond Index; non-U.S. developed bonds by the Bloomberg Barclays Global Aggregate ex USD; and emerging market $ bonds by the JP Morgan EMBI Global Diversified Index. Brent crude oil prices are in U.S. dollars per barrel, gold prices are in U.S. dollar per troy ounce and copper prices are in U.S. dollar per metric ton. The Euro/USD level is represented by U.S. dollar per euro, USD/JPY by yen per U.S. dollar and Pound/USD by U.S. dollar per pound. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an index. Past performance is not indicative of future results.

Asset class views

Views from a U.S. dollar perspective over a three-month horizon

Table: Asset class views from a U.S. dollar perspective

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Richard Turnill
Global Chief Investment Strategist
Richard Turnill, Managing Director, is Global Chief Investment Strategist for BlackRock, leading the Investment Strategy Function within the BlackRock ...
Isabelle Mateos y Lago
Global Macro Strategist, BlackRock Investment Institute
Isabelle Mateos y Lago, Managing Director, is a global macro investment strategist in the Investment Strategy team of the BlackRock Investment Institute. The ...
Kate Moore
Chief Equity Strategist, Americas
Kate Moore, Managing Director, is Chief Equity Strategist – Americas for BlackRock and is a member of the BlackRock Investment Institute. She is responsible for ...
Jeffrey Rosenberg
Chief Fixed Income Strategist
Jeffrey Rosenberg, Managing Director, is BlackRock's Chief Investment Strategist for Fixed Income. His responsibilities include working closely with the Chief ...