Our Q4 Outlook

Our Q4 Outlook

Trade disputes and geopolitical frictions have become key drivers of the economy and markets. Recent geopolitical volatility illustrates this.

Our 2019 investment themes

Protectionist push
The U.S.-China conflict and unpredictability of U.S. policy actions have injected uncertainty into business planning, threatening to weaken economic activity.
Stretching the cycle
The economic expansion is supported by dovish central banks and a robust U.S. consumer, and looks unlikely to morph into a deeper downturn any time soon.
Raising resilience
Portfolio resilience is crucial at a time of elevated macro uncertainty. Government bonds play an important role in cushioning against risk asset selloffs.


  • Trade disputes and geopolitical frictions have become key drivers of the economy and markets. U.S. trade policy is increasingly unpredictable. Recent geopolitical volatility – including attacks on Saudi oil infrastructure – underscores this message.
  • Persistent uncertainty from protectionist policies is denting corporate confidence and slowing business spending. Yet we still believe the economic expansion is intact, supported by dovish central banks and a robust U.S. consumer. This suggests moderate risk-taking will likely be rewarded – even as recent events reinforce our call for a greater focus on portfolio resilience.
  • We expect more Federal Reserve rate cuts, but believe markets are pricing in too much monetary easing. The ECB materially exceeded market expectations on stimulus, launching a broad package with a combined impact that should be greater than the sum of its parts.
  • We do not believe monetary policy alone is a cure for the fallout from global trade tensions. Supply chain disruptions could deliver a hit to productive capacity that fosters mildly higher inflation even as growth slows. This complicates the case for further policy easing.
  • Overall, we favor reducing risk amid the ongoing protectionist push. We prefer U.S. equities for their reasonable valuations and relatively high quality; and the min vol and quality factors for their defensive properties. We like EM debt for its coupon income. We are overweight euro area sovereigns: a relatively steeper yield curve brightens their appeal even at low yields. And we see government bonds as important portfolio stabilizers.

Scoring our views

Risk assets have performed strongly this year to date, but geopolitical tensions loom as an ongoing risk. Government bonds have played an important diversification role.

Asset performance, 2019 second-half and year-to-date

Asset performance, 2019 second-half and year-to-date

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index.
Source: BlackRock Investment Institute, with data from Thomson Reuters. September 2019 Notes: Data are through 16th September 2019. Indexes or prices used are: MSCI Japan Index, FTSE EMU Government Bond Index all maturities Index, JPM GBI-EM Global Diversified Composite Index, MSCI USA Index, JPM EMBI Global Diversified Index, MSCI AC World Index, Bloomberg Barclays Global Aggregate Index, Bloomberg Barclays Pan-European Aggregate: Corporate Index, U.S. TIPS USD Index, Bloomberg Barclays U.S. Treasury Index, Bloomberg Barclays U.S. Credit Index, Bloomberg Barclays Non-Japan Asia Credit Index, MSCI EM Index, MSCI Europe Index, MSCI AC ASIA ex. Japan Index,. Returns are shown in USD. Indexes are unmanaged and not subject to fees.


  • We have been surprised by the extent of the rally in government bonds, which have played a key role in cushioning against equity selloffs.
  • Our overweight in U.S. equities has paid off. Yet rising geopolitical risks challenge our overall moderate pro-risk stance.
  • EM and Asia-ex-Japan equities have underperformed since midyear, validating our shift to an underweight stance.
  • Japanese equities have outperformed, contrary to our expectations, thanks to a lull in trade tensions that we see as temporary.

See our asset views

Chief Investment Strategist Mike Pyle discusses how investors should think about building portfolios for the remainder of this year.

  • Mike Pyle: Our outlook for the remainder of 2019 has three key themes, first is what we call “Protectionist Push” and that’s really about the tensions between the U.S. and China in particular taking center stage. And there will be ebbs and flows, days of good news, days of bad news, but we really do see a pretty profound change in temperature in that economic and technological relationship. We think that is going to be with us for a long time and have profound implications for global economics in markets. Our second theme is “Stretching the Cycle” And in response to the uncertainty that we’ve seen coming out of geopolitics, we really do see a meaningful pivot from the world’s major central banks, the Fed and the ECB in particular. That pivot to a more dovish policy we see as underwriting the expansion and we see as a result of that, growth continuing for some period of time ahead. Our third theme is “Raising Resilience.” And investors need to be building resilient portfolios both against short-term risks as well as longer-term risks, be it climate change or what we talked about here, emerging and persistent geopolitical tension. The important thing is that with this shift from central banks and the extended cycle that we anticipate, it’s given investors an important window of time to build that greater resiliency into their portfolios.

    In terms of how these themes flow through to our investment views for the remainder of 2019, it’s a nuanced message. On one hand, as we talked about, rising geopolitical risk around trade means that uncertainty is up. Prices have moved a long way too, and so overall we want to dial back portfolio risk. At the same time, with the pivot that central banks have made towards more accommodation, extending the cycle, it’s still an opportunity to bear risk, to seek selected places where we can seek return. We think that is centered in U.S. equities, even with the price run up this year, still reasonable valuations, and in U.S. credit and elsewhere, emerging markets included, an opportunity to generate yield in what we see as a relatively stable way. For U.S.-based investors, that means in the shorter term, somewhat increasing their allocations towards cash to be sure that as any shocks emerge, portfolios are resilient. Over the medium term, still viewing U.S. Treasuries as having an important stabilizing role in portfolios.

Meet the authors
Jean Boivin
Jean Boivin
Head of BlackRock Investment Institute
Jean Boivin, PhD, Managing Director, is the Head of the BlackRock Investment Institute (BII). He is responsible for harnessing BlackRock’s investment expertise and ...
Elga Bartsch
Managing Director, Head of Macro Research of the BlackRock Investment Institute
Elga Bartsch, Managing Director, is Head of Macro Research of the BlackRock Investment Institute. Elga heads up economic and markets research of the Blackrock I
Michael Pyle, CFA
Chief Investment Strategist, BlackRock Investment Institute
Michael J. Pyle, CFA, Managing Director, is the Deputy Chief Investment Officer of Multi-Asset Strategies. In this capacity, Mr. Pyle oversees a team responsibl
Scott Thiel
Chief Fixed Income Strategist
Scott Thiel, Managing Director, is Chief Fixed Income Strategist for BlackRock and a member of the BlackRock Investment Institute (BII). He is responsible for d