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Q2 2024 Global investment outlook

Grabbing the wheel: putting money to work

March 25, 2024 | What matters in the new regime of greater market and macro volatility: Sticky inflation and structurally higher interest rates. We think it's time to grab the investing wheel and seize the opportunities the new regime has on offer.

Investment themes

01

Managing macro risk

What matters in the new regime: Sticky inflation and structurally higher interest rates. Markets are still adjusting to this environment – and that’s why context is key in managing macro risk.

02

Steering portfolio outcomes

We think investors need to grab the investment wheel and take a more dynamic approach to their portfolios with both indexing and alpha-seeking strategies while staying selective.

03

Harnessing mega forces

Mega forces are another way to steer portfolios – and think about portfolio building blocks that transcend traditional asset classes, in our view.

Read details of our Q2 2024 outlook:

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Upbeat risk sentiment, for now

As Q2 kicks off, we see a more supportive near-term backdrop for risk-taking and think upbeat market sentiment can persist as inflation keeps falling.

Inflation across developed market economies has been falling from pandemic highs and looks set to reach near 2% this year. That will help pave the way for many central banks to start cutting policy rates. The Federal Reserve’s updated forecasts released in March 2024 still signal three quarter-point rate cuts this year, even as it revised up its inflation and growth forecasts.

After the recent Fed signals, we believe the bar is high for market pricing of immaculate disinflation - inflation falling to 2% targets while growth holds up – to be challenged.

Deliberately navigating macro risk

Our core view has been that in a world shaped by supply, economic activity would be on a lower growth trend. Even with the U.S. economy’s resilience through 2023, activity remains below its pre-Covid trend growth rate.

We’ve also said before that this new macro and market regime is marked by persistent, structural inflation pressures. We think U.S. inflation can fall further toward 2% this year due to falling goods prices. Yet we see inflation on a rollercoaster back up in 2025 as the drag from goods deflation fades and elevated wage growth in a tight labor market keeps services inflation higher than pre-pandemic. Mega forces, or big structural shifts we see driving returns, are also likely to push up on inflation. That’s why we see central bank policy rates staying higher than they were before the pandemic and inflation likely settling closer to 3%.

We believe that calls for staying nimble in portfolios and deliberately managing macro risks.

Taking the investment wheel

Expectations for S&P 500 earnings growth for 2024 have been revised up, with the tech sector expected to account for half of this year’s S&P 500 earnings.

We went tactically overweight U.S. stocks in January 2024, still leaning into the artificial intelligence (AI) theme. We think upbeat risk appetite can broaden out beyond tech as more sectors adopt AI and as market confidence is buoyed by recent Fed messaging and falling inflation.

We up our overweight to Japan. Solid corporate earnings and a recovery in wages and inflation after decades of sluggish progress has brightened the backdrop for Japan stocks. We think the Bank of Japan’s monetary policy stance is supportive of Japan’s markets.

Strategically, we stay selective in fixed income. In February 2024 we trimmed our maximum overweight to inflation-linked bonds, yet our expectation for inflation to settle at a level higher than markets expect keeps us overweight. We still like income within private markets. Within developed market (DM) government bonds, we keep a preference for short-term maturities.

We believe investors would benefit from a more active approach to their portfolios. This is not a time to switch on the investing autopilot; it’s a time to take the controls. It’s important to be deliberate in taking portfolio risk, in our view.

 

Our investment views

Our new investment playbook – both strategic and tactical – calls for greater granularity to capture opportunities arising from greater dispersion and volatility we anticipate in coming years.

Big calls

Our highest conviction views on tactical (6-12 month) and strategic (long-term) horizons, March 2024

  Reasons
Tactical  
U.S. equities Our macro view has us neutral at the benchmark level. But the AI theme and its potential to generate alpha – or above-benchmark returns – push us to be overweight overall.
Income in fixed income The income cushion bonds provide has increased across the board in a higher rate environment. We like short-term bonds and are now neutral long-term U.S. Treasuries as we see two-way risks ahead.
Geographic granularity We favor getting granular by geography and like Japan equities in DM. Within EM, we like India and Mexico as beneficiaries of mega forces even as relative valuations appear rich.
Strategic  
Private credit We think private credit is going to earn lending share as banks retreat – and at attractive returns relative to credit risk.
Inflation-linked bonds We see inflation staying closer to 3% in the new regime on a strategic horizon.
Short- and medium-term bonds We overall prefer short-term bonds over the long term. That’s due to more uncertain and volatile inflation, heightened bond market volatility and weaker investor demand.

Note: Views are from a U.S. dollar perspective, March 2024. 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.

Tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2024

Legend Granular

Our approach is to first determine asset allocations based on our macro outlook – and what’s in the price. The table below reflects this. It leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns. The new regime is not conducive to static exposures to broad asset classes, in our view, but it is creating more space for alpha. For example, the alpha opportunity in highly efficient DM equities markets historically has been low. That’s no longer the case, we think, thanks to greater volatility, macro uncertainty and dispersion of returns. The new regime puts a premium on insights and skill, in our view.

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, March 2024. 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.

Euro-denominated tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2024

Legend Granular

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, March 2024. 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.

Meet the authors
Philipp Hildebrand
Vice Chairman, BlackRock
Jean Boivin
Head of BlackRock Investment Institute
Wei Li
Global Chief Investment Strategist, BlackRock Investment Institute
Christopher Kaminker
Head of Sustainable Investment Research and Analytics, BlackRock Investment Institute
Vivek Paul
Head of Portfolio Research, BlackRock Investment Institute