Favoring diversification, seizing
stock bargains

Nov 13, 2018

We still favor resilient fixed income sectors, but we’re also seeing better valuations in equities.

Equity prices swooned in October amid significant investor skepticism and negativity driven largely by U.S.-China trade tensions, higher Treasury yields, and a few notable earnings disappointments. While each of these factors remain a risk to equities going forward, we believe this selloff has restored some value in the markets and creates an attractive entry point for U.S. equities, particularly given our view that the domestic economy remains healthy heading into 2019.

We are no longer in a world of global synchronized growth and believe multiple cross currents could lead to regional discrepancies. European economic data was much weaker than expected in October with both manufacturing and services disappointing, particularly in Germany and France. China tariffs might just be the tip of the iceberg in a shift toward more regionalized economies, which could have a big impact on companies’ business models.

In the United States, growth has been resilient on the back of last year’s tax package, and third-quarter earnings were, for the most part, positive. While the acceleration in domestic economic activity may be behind us, we believe a healthy level of growth will persist well into 2019. Given the recent strength of U.S. economic data, including last month’s employment report, we continue to believe the Federal Reserve will likely hike rates again in December. We modestly increased duration in October based on our view that the short-end of the curve offers attractive yield levels and can help serve as a hedge against heightened market volatility.

In the BlackRock Multi-Asset Income Fund, we continue to maintain the bulk of exposure in credit fixed income markets, such as bank loans, commercial real estate and residential mortgages, which offer attractive yields and have proved relatively resilient in the recent market selloff.

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