Rethinking long-term investing
Weekly video_20260302
Devan Nathwani
Portfolio Strategist, BlackRock Investment Institute
Opening frame: What’s driving markets? Market take
Camera frame
Markets are being reshaped by multiple, intersecting mega forces. The scale – and direction – of their long-term impact isn’t clear: That’s why it’s crucial to revisit key calls and focus on underlying economic drivers over asset class labels, in our view.
Title slide: Rethinking long-term investing
1: Markets in a cross current of mega forces
Today, we see markets caught in a cross-current of mega forces. AI is front and center, with Nvidia’s quarterly results last week showing the AI buildout spending spree rolling on. At the same time, the software sector selloff marks a new focus on sorting out perceived AI losers. Geopolitical fragmentation also came into the spotlight as the US tariff regime is again in transition.
These forces have the potential to not only change the make-up of economies but even their trajectory. but no one knows the ultimate end state. We see several possible scenarios with very different return outcomes.
For example, AI productivity gains could lead us to an unprecedented break out from a 2% trend rate of growth. This could also fail to materialise, and further geopolitical fragmentation could dampen global growth and drive up risk premia for US assets. One thing that’s certain? There’s no single long-term scenario. And, in our view, that demands a new approach to strategic asset allocation.
2: Moving beyond static allocation
We’ve evolved our capital market assumptions which are for professional investors only, to address this challenge. First, we revisit the biggest portfolio calls more often as new information arrives.
Second, we focus on the fundamental economic drivers rather than asset class labels. Think of the AI buildout: it cuts across public and private market asset classes with opportunities in listed and private infrastructure as well as real estate and private equity. We need a more granular approach to portfolio construction to reflect where mega forces show up.
Third, we budget risk holistically. We see dispersion rising as mega forces power transformation. That strengthens the case for treating alpha as an explicit allocation decision – not as an add-on.
3: Investment implications
We have evolved our views on strategic horizons of 5 years or more. Today, our starting point scenario sees us favoring inflation-linked bonds as we expect inflation to rise due to the AI buildout – and settle above pre-pandemic levels. We see this buildout increasingly being financed through debt issuance resulting in wider credit spreads. Yet we lean into high yield credit as it has attractive income and is less sensitive to interest rate shifts.
We also favor infrastructure. It lets investors play the AI theme without making a call on the winners of AI adoption.
Outro: Here’s our Market take
We lean into inflation linked bonds and high yield credit on a strategic horizon of 5 years or more. In private markets, we favor infrastructure which stands to benefit from rising AI adoption.
Closing frame: Read details: blackrock.com/weekly-commentary
Static strategic asset allocation no longer suffices in a world shaped by mega forces. It’s crucial to revisit key calls and focus on underlying economic drivers.
Investors went risk-off on AI fears in February. The S&P 500 notched its worst month in nearly a year and yields on 10-year US Treasuries fell below 4%.
We’re watching labor data this week. We expect US February payrolls data to show a resilient labor market, reaffirming the Fed’s new hawkish tone.
Renewed conflict in the Middle East, the software selloff and Nvidia’s earnings show mega forces reshaping markets in real time. These mega forces are well known, yet the scale and even direction of their long-run impact is uncertain. With no one long-term scenario, it’s crucial to assess calls more often and focus on fundamental economic drivers over asset class labels. On a strategic horizon of five years or longer, we go overweight high yield credit and like infrastructure.
Leaning on scenarios
Illustrative distribution of US equity returns
For illustrative purposes only. Source: BlackRock Investment Institute, March 2026. Note: The illustration shows a hypothetical distribution of US equity returns in the different scenarios underlying our capital market assumptions. Read more here; for professional investors only.
The cross-currents of mega forces are shaping markets – now and long term. Geopolitical fragmentation is front and center as conflict escalates in the Middle East. The AI buildout keeps rolling on, as seen in Nvidia’s earnings, and the selloff in software marks a new focus on perceived AI losers. At the same time, fiscal and inflation anchors have weakened. The long-run economy could arrive at structurally different regimes, each with very different return expectations. That makes any set of long-run capital market assumptions conditional: it reflects one assumed path for the economy. This led us to begin tracking multiple scenarios last year. See the chart. Our starting point assumes sticky inflation limits interest rate cuts. AI-related gains could spark a breakout from 2% trend growth. This could also fail to occur, and further geopolitical fragmentation could push up risk premium for US assets.
We have evolved our capital market assumptions (CMAs – for professional investors only) and portfolio construction approach to address this bifurcation. Many of these changes align with the broader industry shift towards total portfolio approach (TPA), though TPA itself is loosely defined and can mean many different things in practice. First, we revisit major portfolio judgements more often and set an explicit Plan B grounded in scenarios, with clarity on the portfolio changes those scenarios require. We review our CMAs quarterly and began incorporating explicit alternate scenarios as of Q2 last year.
Focusing on fundamental economic drivers
Second, we focus on fundamental economic drivers rather than asset class labels. Why? Broad asset class benchmarks are a blunt instrument for expressing views in an era of transformation. Mega forces do not show up uniformly across markets: their effects land in specific sectors, parts of the yield curve and balance sheet structures. Portfolio construction needs more granularity to reflect this. So, we shift the unit of analysis. Instead, we measure exposures at the whole portfolio level based on economic and factor drivers of return and risk. This is key for private assets, where benchmarks are less standardized.
Third, we budget portfolio risk holistically. Economic transformation raises dispersion within asset classes. That strengthens the case for treating alpha as an allocation decision, not an add-on. This includes setting clear rules for sizing alpha versus beta risk, and defining where private markets and hedge funds can fit into the risk budget.
We update our strategic views of five years or longer in our starting point scenario. We think the AI buildout will boost inflation and widen credit spreads. Inflation-linked bonds can offset the former. And high yield bonds – less sensitive to interest rate shifts – can offset the latter, so we go overweight. We see fiscal pressures pushing up yields on developed market bonds, so we go neutral. We’re also neutral developed market equities but stay overweight emerging market stocks. We get selective in private credit as dispersion grows. And we like infrastructure given it benefits from multiple mega forces.
Our bottom line
Static, set-it-and-forget-it strategic asset allocation (SAA) doesn’t work in a world where mega forces make long-term outcomes uncertain. Our SAA approach revisits key decisions, focuses on underlying drivers and sets a risk budget.
Market backdrop
The S&P 500 saw its biggest monthly drop since March 2025. Nvidia’s earnings beat failed to soothe mounting market anxiety about AI disruption and higher-than-expected wholesale inflation data reinforced concerns about sticky inflation. US 10-year Treasury yields fell below 4.00% as fretful investors retreated to defensive assets. Brent crude oil gained nearly 4% last week on concerns about further conflict in the Middle East before the weekend developments.
We’re watching labor market data and flash PMIs around the world. We expect February US payrolls to show ongoing labor market resilience – keeping the Federal Reserve on hold in coming months. The market is still pricing in two quarter-point rate cuts by year end. In the euro area, the February flash inflation data are likely to reinforce expectations that the European Central Bank is also on hold.
Week ahead
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of February 26, 2026. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in US dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE US Dollar Index (DXY), spot gold, spot bitcoin, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (US, Germany and Italy), Bloomberg Global High Yield Index, J.P. Morgan EMBI Index, Bloomberg Global Corporate Index and MSCI USA Index.
Global flash PMIs
Euro area flash inflation; Japan unemployment
Euro area unemployment
US payrolls; euro area revised
Read our past weekly commentaries here.
Big calls
Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, March 2026
| Reasons | ||
|---|---|---|
| Tactical | ||
| Still favor AI | We see the AI theme supported by strong earnings, resilient profit margins and healthy balance sheets at large listed tech companies. Continued Fed easing into 2026 and reduced policy uncertainty underpin our overweight to US equities. | |
| Select international exposures | We like Japanese equities on strong nominal growth and corporate governance reforms. We stay selective in European equities, favoring financials, utilities and healthcare. In fixed income, we prefer EM due to improved economic resilience and disciplined fiscal and monetary policy. | |
| Evolving diversifiers | We suggest looking for a “plan B” portfolio hedge as long-dated US Treasuries no longer provide portfolio ballast – and to mind potential sentiment shifts. We like gold as a tactical play with idiosyncratic drivers but don’t see it as a long-term portfolio hedge. | |
| Strategic | ||
| Portfolio construction | We favor a scenario-based approach as AI winners and losers emerge. We lean on private markets and hedge funds for idiosyncratic return and to anchor portfolios in mega forces. | |
| Infrastructure equity and private credit | We find infrastructure equity valuations attractive and mega forces underpinning structural demand. We still like private credit but see dispersion ahead – highlighting the importance of manager selection. | |
| Beyond market cap benchmarks | We get granular in public markets. We favor DM government bonds outside the US Within equities, we favor EM over DM yet get selective in both. In EM, we like India which sits at the intersection of mega forces. In DM, we like Japan as mild inflation and corporate reforms brighten the outlook. | |
Note: Views are from a US dollar perspective, March 2026. 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 2026
We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.
| Asset | Tactical view | Commentary | ||||
|---|---|---|---|---|---|---|
| Developed markets | ||||||
| United States |  |
We are overweight. Strong corporate earnings, driven in part by the AI theme, are supported by a favorable macro backdrop: continued Federal Reserve easing, broad economic optimism and less policy uncertainty, particularly on the trade front. | ||||
| Europe |  |
We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare. | ||||
| UK | |
We are neutral. Valuations remain attractive relative to the US, but we see few near-term catalysts to trigger a shift. | ||||
| Japan | |
We are overweight. Strong nominal GDP, healthy corporate capex and governance reforms – such as the decline of cross-shareholdings – all support equities. | ||||
| Emerging markets | |
We are neutral. Economic resilience has improved, yet selectivity is key. We see opportunities across EM linked to AI and the energy transition and see the rewiring of supply chains benefiting countries like Mexico, Brazil and Vietnam. | ||||
| China | |
We are neutral. Trade relations with the US have steadied, but property stress and an aging population still constrain the macro outlook. Relatively resilient activity limits near-term policy urgency. We like sectors like AI, automation and power generation. We still favor China tech within our neutral view. | ||||
| Fixed income | ||||||
| Short US Treasuries | |
We are neutral. We see other assets offering more compelling returns as short-end yields have fallen alongside the US policy rate. | ||||
| Long US Treasuries |  |
We are underweight. We see high debt servicing costs and price-sensitive domestic buyers pushing up on term premium. Yet we see risks to this view: lower inflation and better tax revenues could push down yields near term. | ||||
| Global inflation-linked bonds | |
We are neutral. We think inflation will settle above pre-pandemic levels, but markets may not price this in the near-term as growth cools. | ||||
| Euro area government bonds | |
We are neutral. We agree with market forecasts of ECB policy and think current prices largely reflect increased German bond issuance to finance its fiscal stimulus package. We prefer government bonds outside Germany. | ||||
| UK Gilts | |
We are neutral. The recent budget aims to shore up market confidence through fiscal consolidation. But deferred borrowing cuts could bring back gilt market volatility. | ||||
| Japanese government bonds |  |
We are underweight. Rate hikes, higher global term premium and heavy bond issuance will likely drive yields up further. | ||||
| China government bonds | |
We are neutral. China bonds offer stability and diversification but developed market yields are higher and investor sentiment shifting towards equities limits upside. | ||||
| US agency MBS | |
We are overweight. Agency MBS offer higher income than Treasuries with similar risk and may offer more diversification amid fiscal and inflationary pressures. | ||||
| Short-term IG credit | |
We are neutral. Corporate strength means spreads are low, but they could widen if issuance increases and investors rotate into US Treasuries as the Fed cuts. | ||||
| Long-term IG credit | |
We are underweight. We prefer short-term bonds less exposed to interest rate risk over long-term bonds. | ||||
| Global high yield | |
We are neutral. High yield offers more attractive carry in an environment where growth is holding up – but we think dispersion between higher and weaker issuers will increase. | ||||
| Asia credit | |
We are neutral. Overall yields are attractive and fundamentals are solid, but spreads are tight. | ||||
| Emerging hard currency | |
We are overweight. A weaker US dollar, lower US rates and effective EM fiscal and monetary policy have improved economic resilience. We prefer high yield bonds. | ||||
| Emerging local currency | |
We are neutral. A weaker US dollar has boosted local currency EM debt, but it’s unclear if this weakening will persist. | ||||
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 US dollar perspective. 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 2026
| Asset | Tactical view | Commentary | ||
|---|---|---|---|---|
| Equities | ||||
| Europe ex UK | |
We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare. | ||
| Germany | |
We are neutral. Increased spending on defense and infrastructure could boost the corporate sector. But valuations rose significantly in 2025 and 2026 earnings revisions for other countries are outpacing Germany. | ||
| France | |
We are neutral. Political uncertainty could continue to drag corporate earnings behind peer markets. Yet some major French firms are shielded from domestic weakness, as foreign activity accounts for most of their revenues and operations. | ||
| Italy | |
We are neutral. Valuations are supportive relative to peers. Yet we think the growth and earnings outperformance that characterized 2022-2023 is unlikely to persist as fiscal consolidation continues and the impact of prior stimulus peters out. | ||
| Spain | |
We are overweight. Valuations and earnings growth are supportive relative to peers. Financials, utilities and infrastructure stocks stand to gain from a strong economic backdrop and advancements in AI. High exposure to fast-growing areas like emerging markets is also supportive. | ||
| Netherlands | |
We are neutral. Technology and semiconductors feature heavily in the Dutch stock market, but that’s offset by other sectors seeing less favorable valuations and a weaker earnings outlook than European peers. | ||
| Switzerland |  |
We are neutral. Valuations have improved, but the earnings outlook is weaker than other European markets. If global risk appetite stays strong, the index’s tilt to stable, less volatile sectors may weigh on performance. | ||
| UK | |
We are neutral. Valuations remain attractive relative to the U.S., but we see few near-term catalysts to trigger a shift. | ||
| Fixed income | ||||
| Euro area government bonds | |
We are neutral. Yields are attractive, and term premium has risen closer to our expectations relative to US Treasuries. Peripheral bond yields have converged closer to core yields. | ||
| German bunds | |
We are neutral. Potential fiscal stimulus and bond issuance could push yields up, but we think market pricing reflects this possibility. Market expectations for near-term policy rates are also aligned with our view. | ||
| French OATs | |
We are neutral. France faces continued challenges from elevated political uncertainty, high budget deficits and slow structural reforms, but these risks already seem priced into OATs and we don’t expect a worsening from here. | ||
| Italian BTPs | |
We are neutral. The spread over German bunds looks tight given its large budget deficits and growing public debt. Domestic factors remain supportive, with growth holding up relative to the rest of the euro area and Italian households showing solid demand to hold BTPs at higher yields. Domestic political pushback likely prevents defense spending from rising to levels that would resurface fiscal stability concerns. | ||
| UK gilts | |
We are neutral. Gilt yields are off their highs, but we expect more market attention on long-term yields through the government’s November budget, given the difficulty it has had implementing spending cuts. | ||
| Swiss government bonds | |
We are neutral. Markets are expecting policy rates to return to negative territory, which we deem unlikely. | ||
| European inflation-protected securities | |
We are neutral. We see higher medium-term inflation, but inflation expectations are firmly anchored. Cooling inflation and uncertain growth may matter more near term. | ||
| European investment grade | |
We are neutral on European investment grade credit, favoring short- to medium-term paper for quality income. We prefer European investment grade over the US Quality-adjusted spreads have tightened significantly relative to the US, but they remain wider, and we see potential for further convergence. | ||
| European high yield | |
We are overweight. The income potential is attractive, and we prefer European high yield for its more appealing valuations, higher quality and less sensitivity to interest rate swings compared with the US Spreads adequately compensate for the risk of a potential rise in defaults, 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 euro perspective, March 2026. 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
Jean Boivin
Wei Li
Vivek Paul
Devan Nathwani
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