EXPERT INSIGHTS FROM BLACKROCK FUNDAMENTAL EQUITIES – Q1 STOCK MARKET OUTLOOK

Stock Market Monitor

14.Dec.2023
  • Helen Jewell

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Key points

01

Improving economic picture

Inflation has fallen globally, meaning many consumers are now seeing their inflation-adjusted wages grow.

02

Public spending and innovation to boost earnings

Certain companies to benefit from government spending on decarbonization and rapid technological change.

03

A focus on quality and valuations

Higher rates than the past 15 years call for companies with earnings resilience at reasonable valuations, in our view.

Equity market momentum to continue?

At BlackRock Fundamental Equities, we believe stock markets can carry a strong 2023 performance over into 2024. Analysts forecast that corporate earnings globally will grow around 9% in 2024 and, historically, valuations have been closely correlated with stock returns. And the macroeconomic picture has improved. Inflation has fallen globally, meaning many consumers are now seeing their inflation-adjusted wages grow.

For equities, the pace of interest-rate change is more important than the absolute level. The chart below shows how equities have historically performed better when rates are similar to current levels than when they were lower. Yet we do believe that these higher rates will pose a challenge to some companies, adding to earnings dispersion and a greater gap between equity market leaders and laggards. This is an environment ripe for stock picking, in our view.

Four investment themes for 2024

Next-12-month global equity returns during different interest rate environments (1975-2022).

Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index. The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results. Source: Data from Ken French and Federal Reserve Economic Data, November 2023. Note: the chart shows the average next-12-month global equity returns during different interest rate environments, 1975-2022. Global equities are represented by MSCI World and returns are shown in value weighted dollar terms.

Mind the government money

Governments are spending big on multi-decade projects such as decarbonization and supply-chain security. We believe this can help provide earnings resilience to a range of companies across sectors.

Rapid change and innovation

We aim to unearth the next round of winners from technological innovations such as Artificial Intelligence and weight loss drugs – while avoiding those businesses that face disruption.

Quality and capital return

We seek companies with the ability to grow in an environment of lower economic growth. Quality companies may also be in a position to return cash to shareholders through dividends and buybacks.

Valuations – not necessarily "value"

Attractive valuations can be found beyond traditional “value” sectors, in our view. Cyclical valuation pullbacks and regional discounts may mean that some quality companies come at a reasonable price.

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Risk warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

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