Why is a boxing ring called a ring when it’s shaped like a square? Because back in the day, boxers would fight in a circle roughly drawn on the ground. They faced off in circular rings until the square ring was introduced in the 1800s. To this day, the boxing ring is sometimes referred to as the "square circle."

Southpaw or Orthodox?

In some sense, the Federal Reserve (Fed) is in a ring of its own. With most of the world’s central banks on the side of easing, the Fed is making the diametric move of raising its benchmark interest-rate target to between 0.25% and 0.50%. This step forward in normalizing monetary policy is said to be the first in a series, and the pace of future increases is promised to be gradual and would go alongside a growing U.S. economy. The inflation outlook is another key consideration for the timing of the next increase.

Roll With the Punches

Divergence in central bank policies remains an important investment theme going into 2016. But keep in mind central banks will not provide the same level of market support for asset prices that they have in recent years. Case in point: the European Central Bank’s (ECB’s) much-signaled but slighter-than-expected quantitative easing (QE) upgrade. In fact, the market reaction again shows that conditions outside the United States can drive, or even dominate, U.S. markets. We have already seen the impact of low European rates on the U.S. yield curve and rising volatility driven by China and the collapse in oil prices this year. What’s next?

Go the Distance

We are prepared for more Fed rate hikes next year and are staying with our regimen: a portfolio tilted toward stocks, select credit and tax-exempt bonds. We see interest rates rising but expect them to climb slowly and remain low for a long time. Should policy divergence result in a stronger U.S. dollar, stocks stateside could be put under additional pressure. Our emphasis is on opportunities abroad (like Europe), and sectors (e.g., financials) that could withstand, or even benefit, from a rising rate environment.

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Issued in Australia by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230523 (“BlackRock”). This information is provided for ‘wholesale clients’ and ‘professional investors’ only. Before investing in an iShares exchange traded fund, you should carefully consider whether such products are appropriate for you, read the applicable prospectus or product disclosure statement available at iShares.com.au and consult an investment adviser. Past performance is not a reliable indicator of future performance. Investing involves risk including loss of principal. No guarantee as to the capital value of investments nor future returns is made by BlackRock or any company in the BlackRock group. Recipients of this document must not distribute copies of the document to third parties. This information is indicative, subject to change, and has been prepared for informational or educational purposes only. No warranty of accuracy or reliability is given and no responsibility arising in any way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock. No representation or guarantee whatsoever, express or implied, is made to any person regarding this information. This information is general in nature and has been prepared without taking into account any individual's objectives, financial situation, or needs. You should seek independent professional legal, financial, taxation, and/or other professional advice before making an investment decision regarding the iShares funds. An iShares fund is not sponsored, endorsed, issued, sold or promoted by the provider of the index which a particular iShares fund seeks to track. No index provider makes any representation regarding the advisability of investing in the iShares funds.

Notice to investors in New Zealand:
(For wholesale clients only - not for public distribution.)
This material is being distributed in New Zealand by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230523 ("BlackRock"). In New Zealand, this information is provided for registered financial service providers and other wholesale clients only in that capacity, and is not provided for New Zealand retail clients as defined under the Financial Advisers Act 2008. BlackRock does not offer interests in iShares to the public in New Zealand, and this material does not constitute or relate to such an offer. Before investing in an iShares exchange traded fund, you should carefully consider whether such products are appropriate for you, read the applicable prospectus or product disclosure statement available at iShares.com.au and consult an investment adviser. Past performance is not a reliable indicator of future performance. Investing involves risk including loss of principal. No guarantee as to the capital value of investments nor future returns is made by BlackRock or any company in the BlackRock group. Recipients of this document must not distribute copies of the document to third parties. This information is indicative, subject to change, and has been prepared for informational or educational purposes only. No warranty of accuracy or reliability is given and no responsibility arising in any way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock. No representation or guarantee whatsoever, express or implied, is made to any person regarding this information. This information is general in nature and has been prepared without taking into account any individual's objectives, financial situation, or needs. You should seek independent professional legal, financial, taxation, and/or other professional advice before making an investment decision regarding the iShares funds. An iShares fund is not sponsored, endorsed, issued, sold or promoted by the provider of the index which a particular iShares fund seeks to track. No index provider makes any representation regarding the advisability of investing in the iShares funds.

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