Global Allocation team’s
outlook for 2017

Insights from the portfolio manager’s office

Mar 6, 2017

Compared to early 2016, investor concerns today have shifted from deflation to inflation and there is more optimism about growth. Portfolio managers Dennis Stattman and Russ Koesterich discuss how 2017 may be different.

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    Russ Koesterich: With the benefit of one month behind us, it seems that many of the same themes that defined the back half of the 2016 – higher rates, stronger global economy – are dominating the market in the beginning of 2017. How do you see this year shaping up?

    Dennis Stattman: I think that’s right. And, effectively we see 2017 as one in which investor concerns have shifted. If we go back a year to early 2016, there were what we thought were exaggerated fears of deflation and recession. And today, fears have shifted from deflation to inflation. And, I will say there is more optimism about growth. Now the thing is, if we get more inflation that could be quite bad for the bond market. Because, even still, after this rise in yields, bonds are not priced for any kind of increase in inflation. And, we think inflation is likely to increase if the sort of new government policies that are being discussed, come to fruition.

    Russ Koesterich: Let me ask you a question about that, because I think this is something we spend a lot of time discussing. If the policies come into fruition, so, the market seems to develop this narrative that the new administration will be pro-growth, maybe add a bit to inflation and there will be fiscal stimulus, there will be tax reform. How dependent is the market on those actually happening and under what time frame?

    Dennis Stattman: So, I think this is a story on Washington of it’s easier said than done. And it’s true that Republican Party has both of White House – the House of Representatives and the Senate. But, just because someone is Republican does not mean that, that person thinks just like everyone else in their party. And so there, it’s politics. There will be some toing and froing. And there has been a lot of expectation on the tax side. We share the expectation that the corporate tax rate is likely to come down. But anything that brings that into doubt or causes people to think that it’s going to be delayed - would be hurtful for the stock market at this point.

    Russ Koesterich: Most interesting, we spent so much time in the last few years focused on the Fed (Federal Reserve). Now it seems we are going to be focused on a different part of Washington.

    Dennis Stattman: Yes, it does. And expectations now are considerably higher. If they work out, there are plenty of things that could go right. For example – if we get a fiscal policy that’s aimed correctly, we get some more spending on our infrastructure; if we get more sensible tax laws and perhaps some relief from rates - we after all have one of the highest corporate tax rates in the world. And, if we get some sensible de-regulation. All of those would be pro-economy, pro-growth and probably pro-investor returns.

     


MALOX
Global Allocation Fund seeks a rate of return competitive with that of global stocks at a lower level of volatility over a full market cycle by diversifying broadly across the world.
Dennis Stattman, CFA
Portfolio Manager, Head of the Global Allocation Team
Dennis Stattman, CFA, Managing Director and portfolio manager, is head of the Global Allocation team within BlackRock's Multi-Asset Strategies Group.
Russ Koesterich, CFA
Portfolio Manager, Global Allocation
Russ Koesterich, CFA, JD, is a Managing Director and portfolio manager of BlackRock’s Global Allocation Fund. The team is part of BlackRock's Multi-Asset ...