Our Q4 Outlook

Q4 Global outlook – November update

Trade disputes and geopolitical frictions have become key drivers of the economy and markets. Recent geopolitical volatility illustrates this.

Our 2019 investment themes

Protectionist push
The US-China conflict and unpredictability of US policy actions have injected uncertainty into business planning, threatening to weaken economic activity.
Stretching the cycle
The economic expansion is supported by dovish central banks and a robust US consumer, and looks unlikely to morph into a deeper downturn any time soon.
Raising resilience
Portfolio resilience is crucial at a time of elevated macro uncertainty. Government bonds play an important role in cushioning against risk asset selloffs.


  • Trade disputes and geopolitical frictions have become key drivers of the economy and markets. U.S. trade policy has become increasingly unpredictable. Recent geopolitical volatility including attacks on Saudi oil infrastructure underscores this message from our Midyear Outlook.
  • A temporary de escalation in U.S. China tensions and fading odds of the UK crashing out of the European Union has sparked a relief rally in risk assets. Yet elevated macro uncertainty is holding back economic activity, creating risks to the near term growth outlook. We expect a pickup in global growth in the next six to 12 months, as policy stimulus gradually filters through to the real economy . This suggests moderate risk taking will likely be rewarded even as we call for a greater focus on portfolio resilience.
  • Central banks face an increasingly challenged policy outlook. Monetary policy ammunition is running low as interest rates are near historic lows. Difficult policy choices are resulting in more deeply divided decision making bodies on both sides of the Atlantic.
  • We do not believe monetary policy alone is a cure for the fallout from global trade tensions. Supply chain disruptions could deliver a hit to productive capacity that fosters mildly higher inflation even as growth slows. This complicates the case for further policy easing.
  • Overall, we favor reducing risk amid the ongoing protectionist push. We prefer U.S. equities for their reasonable valuations and relatively high quality; and the min vol and quality factors for their defensive properties. We like EM debt for its coupon income. We are tactically overweight euro area sovereigns: a relatively steeper yield curve brightens their appeal even at low yields. And we see government bonds as important portfolio stabilizers.

Scoring our views

Risk assets have performed strongly this year to date, but geopolitical tensions loom as an ongoing risk. Government bonds have played an important diversification role.

Asset performance, 2019 second-half and year-to-date

Asset performance, 2019 second-half and year-to-date

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index.
Source: BlackRock Investment Institute, with data from Thomson Reuters. October 2019 Notes: Data are through 22nd October 2019. Indexes or prices used are: MSCI Japan Index, J.P. Morgan Government Bond Index-Emerging Markets Index, MSCI USA Index, FTSE EMU Government Bond Index all maturities Index, Bloomberg Barclays Non-Japan Asia Credit Index, MSCI AC World Index, J.P. Morgan EMBI Global Diversified Index, Bloomberg Barclays U.S. Credit Index, Bloomberg Barclays U.S. Treasury Index, MSCI Europe Index, Bloomberg Barclays Global Aggregate Index, U.S. TIPS USD Index, Bloomberg Barclays Pan-European Aggregate: Corporate Index, MSCI EM Index, MSCI AC ASIA ex. Japan Index. Returns in USD. Indexes are unmanaged and not subject to fees.

  • We have been surprised by the extent of the rally in government bonds, which have played a key role in cushioning against equity selloffs.
  • Our overweight in US equities has paid off. Yet rising geopolitical risks challenge our overall moderate pro-risk stance.
  • EM and Asia-ex-Japan equities have underperformed since midyear, validating our shift to an underweight stance.
  • Japanese equities have outperformed, contrary to our expectations, thanks to a lull in trade tensions that we see as temporary.

See our asset views

Chief Investment Strategist Mike Pyle discusses how investors should think about building portfolios for the remainder of this year.

  • Mike Pyle: Our outlook for the remainder of 2019 has three key themes, first is what we call “Protectionist Push” and that’s really about the tensions between the US and China in particular taking center stage. And there will be ebbs and flows, days of good news, days of bad news, but we really do see a pretty profound change in temperature in that economic and technological relationship. We think that is going to be with us for a long time and have profound implications for global economics in markets. Our second theme is “Stretching the Cycle” And in response to the uncertainty that we’ve seen coming out of geopolitics, we really do see a meaningful pivot from the world’s major central banks, the Fed and the ECB in particular. That pivot to a more dovish policy we see as underwriting the expansion and we see as a result of that, growth continuing for some period of time ahead. Our third theme is “Raising Resilience.” And investors need to be building resilient portfolios both against short-term risks as well as longer-term risks, be it climate change or what we talked about here, emerging and persistent geopolitical tension. The important thing is that with this shift from central banks and the extended cycle that we anticipate, it’s given investors an important window of time to build that greater resiliency into their portfolios.

    In terms of how these themes flow through to our investment views for the remainder of 2019, it’s a nuanced message. On one hand, as we talked about, rising geopolitical risk around trade means that uncertainty is up. Prices have moved a long way too, and so overall we want to dial back portfolio risk. At the same time, with the pivot that central banks have made towards more accommodation, extending the cycle, it’s still an opportunity to bear risk, to seek selected places where we can seek return. We think that is centered in US equities, even with the price run up this year, still reasonable valuations, and in US credit and elsewhere, emerging markets included, an opportunity to generate yield in what we see as a relatively stable way. For US-based investors, that means in the shorter term, somewhat increasing their allocations towards cash to be sure that as any shocks emerge, portfolios are resilient. Over the medium term, still viewing US Treasuries as having an important stabilizing role in portfolios.

Meet the authors
Jean Boivin
Head of BlackRock Investment Institute
Jean Boivin, PhD, Managing Director, is the Head of the BlackRock Investment Institute (BII). The institute leverages BlackRock’s expertise and produces proprie
Elga Bartsch
Head of Macro Research, BlackRock Investment Institute
Elga Bartsch, PhD, Managing Director, heads up economic and markets research at the Blackrock Investment Institute (BII). BII provides connectivity between Blac
Mike Pyle
Chief Investment Strategist, BlackRock Investment Institute
Mike Pyle, CFA, Managing Director, is Global Chief Investment Strategist for BlackRock, leading the Investment Strategy function within the BlackRock Investment
Scott Thiel
Chief Fixed Income Strategist, BlackRock Investment Institute
Scott Thiel, Managing Director, is Chief Fixed Income Strategist for BlackRock and a member of the BlackRock Investment Institute (BII). He is responsible for d

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