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Market take
Weekly video_20250630
Nicholas Fawcett
Senior Economist, BlackRock Investment Institute
Opening frame: What’s driving markets? Market take
Camera frame
As the end of the 90-day tariff pause looms, we think immutable economic laws will limit extreme policy changes. The administration is shifting to more market-friendly policies, including tax cuts and regulatory reforms.
Title slide: Tariff and tax policy back center stage
1: Economic laws limit tariff extremes
We’ve learned since the April 2 tariff announcement that immutable laws prevent rapid changes from the status quo.
One such law? Supply chains can’t be rewired quickly without disruption. That likely led to tariff carveouts for electronics and spurred U.S.-China trade talks.
We think the 90-day tariff pause was sparked by another law: Sustaining U.S. debt relies on foreign investors.
2: Tax cuts on the way
The budget bill in front of Congress includes proposals to extend and expand 2017 tax cuts. Tax cuts could boost investor sentiment, though it will take time to feel the impact.
3: Regulatory reform ramps up
The Federal Reserve, meanwhile, has proposed revisions to capital requirements that would allow banks to buy more Treasuries. That could potentially offset weaker foreign demand.
We’re also tracking how deregulation will benefit mega forces.
The GENIUS Act could advance the future of finance mega force. It aims to clarify the regulatory framework for stablecoins, or asset-backed digital currencies. And that could enable wider adoption.
Outro: Here’s our Market take
We think these market-friendly policy shifts could fuel animal spirits, supporting our U.S. equity overweight. We stay underweight long-term U.S. Treasuries, preferring shorter-term ones.
Closing frame: Read details: blackrock.com/weekly-commentary
As U.S. policy reclaims center stage, we think immutable economic laws will limit extremes, while tax cuts and deregulation could boost investor sentiment.
Stocks hit new highs last week, partly on progress in U.S.-China trade talks. Core inflation ticked up more than expected, with signs of tariffs upping goods prices.
We watch the U.S. jobs report for signs of tariff impacts. Companies may be awaiting more policy clarity before making staffing decisions.
U.S. policy developments are coming thick and fast. As the end of the 90-day tariff pause looms, we think immutable economic laws will prevent a return to a maximal stance. We are also seeing movement in U.S. policies that could boost investor sentiment, including tax cuts and regulatory reforms like a federal stablecoin framework. These reforms will take time but support our U.S. equities overweight. We stay underweight long-term Treasuries on sticky inflation and deficit concerns.
Tariffs here to stay
U.S. effective tariff rate, 1900-2025
Source: BlackRock Investment Institute, Census Bureau, Historical Statistics of the United States, with data from Haver Analytics, June 2025. Note: The line shows the historic effective U.S. tariff rate, with two dots for the effective tariff rate including tariffs as of June 30 and what the tariff rate would be if April 2 “reciprocal tariffs” came into effect.
Policymaking has been adding to market volatility – and several major policy developments have taken place in recent days. Consider the ceasefire in the Middle East, a NATO commitment to up defense spending and a G7 tax agreement. The U.S. now looks to be taking a more flexible approach to tariffs. While the current effective tariff rate of 15% is still the highest since the 1930s – see the chart – we’ve repeatedly seen that immutable laws prevent fast deviation from the status quo. One law – supply chains can’t be rewired quickly without grave consequences – likely led to carveouts for some industries and a resumption of U.S.-China trade talks. Another – U.S. debt sustainability relies on foreign investors – was likely a factor in the 90-day pause on tariffs that had spiked yields. We don’t see a return to April’s maximal tariffs and trade uncertainty is now well below April’s highs.
The administration is also advancing major pro-growth tax and regulatory reforms. On the tax front, the budget bill under review extends and expands the cuts in the 2017 Tax Cuts and Jobs Act, which could boost investor sentiment. Another boost: the exemption of U.S. multinational companies from a set of taxes imposed by G7 nations, granted in exchange for the removal of Section 899 from the budget bill – a provision that would have allowed taxes on foreign investors in U.S. assets.
The Federal Reserve has proposed revisions to the supplementary leverage ratio (SLR), which would free up capital for banks to hold more Treasuries, potentially offsetting weaker foreign demand. They could also support bank lending to the economy – though perhaps less than in the past, given the growth of private credit alternatives.
We’re also tracking regulatory changes that could benefit the artificial intelligence (AI) and future of finance mega forces. The U.S. administration is set to release an action plan to promote competitiveness in the global AI race. State-level deregulation is also advancing. In West Virginia, a new law allows data centers to bypass zoning ordinances and leverage their own power sources rather than local utilities. If reform passes at the federal level – and if tax cuts unleash more capital for companies to invest in the AI buildout – it could fuel economic growth. It could also create opportunities in energy infrastructure, especially in private markets. Lastly, the GENIUS Act could advance the future of finance mega force by giving stablecoins – digital currencies backed by liquid assets like cash and short-term Treasuries – a clear regulatory framework that fosters wider use.
We think these market-friendly policies could fuel animal spirits, supporting our U.S. equity overweight. We still prefer credit over government bonds, and within Treasuries still prefer short- and medium- over long-term. We recognize long-term yields could temporarily fall as markets price in rate cuts amid shifting narratives and as near-term momentum continues. But we think sticky inflation will prevent the Fed from cutting far, and high deficits will mean investors will want more compensation, or term premium, for the risk of holding long-term government debt.
We think immutable laws will prevent tariffs from going back to April 2 highs – and trade uncertainty has come down. As major tax and regulatory reform unfolds, we stay risk on and overweight U.S. equities.
Last week, U.S. stocks hit all-time highs, partly on progress in U.S.-China trade talks. The S&P 500 gained more than 3% and was up nearly 24% from its April lows, with tech shares outperforming. Crude oil futures dipped to about $65 a barrel, erasing all their gains after Israel’s attack on Iran. U.S. 10-year Treasury yields dipped near 4.28%, still about 40 basis points above their intraday April lows. Core PCE inflation ticked up to 2.7% in May as signs of tariffs pushing up goods prices emerged.
This week, we’re watching the U.S. June jobs report for signs of where the labor market stands. The data have yet to show tariff-related impacts – but that doesn’t mean the labor market will avoid a hit. Companies may be awaiting more policy clarity before making staffing decisions. Slower immigration post-pandemic and an aging population will also drag on labor supply and push wages up – which could in turn keep inflation above the Fed’s 2% target.
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of June 26, 2025. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.
Japan Tankan business survey; euro area inflation
Euro area unemployment
U.S. payrolls
Read our past weekly commentaries here.
Our highest conviction views on tactical (6-12 month) and strategic (long-term) horizons, July 2025
Reasons | ||
---|---|---|
Tactical | Reasons | |
U.S. equities | ReasonsPolicy uncertainty and supply disruptions are weighing on near-term growth, raising the risk of a contraction. Yet we think U.S. equities will regain global leadership as the AI theme keeps providing near-term earnings support and could drive productivity in the long term. | |
Using FX to enhance income | ReasonsFX hedging is now a source of income, especially when hedging euro area bonds back into U.S. dollars. For example, 10-year government bonds in France or Spain offer more income when currency hedged than U.S. investment grade credit, with yields above 5%. | |
Seeking alpha sources | ReasonsWe identify sources of risk taking to be more deliberate in earning alpha. These include the potential impact of regulatory changes on corporate earnings, spotting crowded positions where markets could snap back and opportunities to provide liquidity during periods of stress. | |
Strategic | Reasons | |
Infrastructure equity and private credit | ReasonsWe see opportunities in infrastructure equity due to attractive relative valuations and mega forces. We think private credit will earn lending share as banks retreat – and at attractive returns. | |
Fixed income granularity | ReasonsWe prefer short-term inflation-linked bonds over nominal developed market (DM) government bonds, as U.S. tariffs could push up inflation. Within DM government bonds, we favor UK gilts over other regions. | |
Equity granularity | ReasonsWe favor emerging over developed markets yet get selective in both. Emerging markets (EM) at the cross current of mega forces – like India – offer opportunities. In DM, we like Japan as the return of inflation and corporate reforms brighten the outlook. | |
Comments | ||
Note: Views are from a U.S. dollar perspective, July 2025. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any particular funds, strategy or security. |
Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, July 2025
The table below reflects our views on a tactical horizon and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at times of heightened volatility.
Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, July 2025
Asset | Tactical view | Commentary | ||
---|---|---|---|---|
AssetEquities | Tactical view | Commentary | ||
Asset Europe ex UK | Tactical view |
CommentaryWe are neutral. Greater unity and a pro-growth agenda across Europe could boost activity, yet we are watching how the bloc tackles its structural challenges before turning more optimistic. We note selective opportunities in financials and industries tied to defense and infrastructure spending. | ||
AssetGermany | Tactical view |
CommentaryWe are neutral. Valuations and earnings growth are supportive relative to peers, especially as ECB rate cuts ease financing conditions. Prolonged uncertainty about potential tariffs and fading euphoria over China’s stimulus could dent sentiment. | ||
AssetFrance | Tactical view |
CommentaryWe are neutral. Ongoing political uncertainty could weigh on business conditions for French companies. Yet only a small share of the revenues and operations of major French firms is tied to domestic activity. | ||
AssetItaly | Tactical view |
CommentaryWe are neutral. Valuations are supportive relative to peers. Yet past growth and earnings outperformance largely stemmed from significant fiscal stimulus in 2022-2023, which is unlikely to be sustained in the coming years. | ||
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a euro perspective, July 2025. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security. |
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Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.