BlackRock’s Monthly Market Outlook for Financial Advisors

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I’m Carolyn Barnette, Head of BlackRock’s Market and Portfolio Insights for U.S. Wealth team, here with your Advisor Outlook update for April.

As we kick off the second quarter, U.S. equity markets are off to the races… again. We’ve seen many of the high quality U.S. megacap stocks that drove performance last year continue driving markets higher this year, and we believe that could continue – strong earnings from some of the biggest names mean that, in some cases, even though prices rose, valuations actually came down.

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Slide 4: We like stocks in 2024…

We’re keeping our overweight to stocks over bonds, and to U.S. quality equities in particular. The Fed met at the end of March, and while their decision to hold rates steady probably didn’t surprise anyone, their meaningful revision to 2024 GDP growth expectations might have. With growth expectations on the rise, and a Fed that still sounds committed to lowering interest rates later this year, we are optimistic about equity returns.

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Slide 8: Quality remains our core focus

We’ve been watching for signs of equity market performance broadening, but we haven’t seen it yet – U.S. large caps continue to outperform smaller caps and international stocks. And we think this could continue for at least the next few months – highly profitable companies that are less sensitive to today’s high interest rates have delivered stronger earnings, and they may continue to do so – especially those that are able to capitalize on artificial intelligence. It’s no accident that many of the strongest performers YTD are also some of today’s highest quality companies.

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Slide 11: Bonds over cash…

Let’s turn to bonds. We have a Fed that’s guiding us towards higher growth expectations, but has also expressed a preference to start cutting interest rates later this year. And it’s been quite a while since the Fed has cut interest rates before the U.S. fell into recession – but it’s starting to look like the Fed might pull this one off. The last time we saw a Fed cutting into an economy as strong as today’s was 1995, when they cut interest rates three times between June 1995 and January 1996.

Following these “maintenance cuts,” shorter-term bond yields fell the most, and bonds outperformed cash across the board. While cash did… fine… the longer duration bonds were able to combine income with the capital appreciation that follows falling rates, beating cash handily.

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Slide 12: We prefer the belly of the curve

Of course, the big difference between 1995 and today is that today, the yield curve is inverted – longer-term interest rates are lower than shorter-term. And when the yield curve was inverted at the Fed’s pivot point, the resulting interest rate changes looked really different from that last “soft landing” scenario – longer-term rates barely moved at all, and interest rates in the belly of the curve fell by quite a bit.

We think the belly of the curve provides the best combination of income and capital appreciation potential, and that active curve positioning can add a ton of value in today’s environment – especially with so much of the Agg Bond Index’s duration coming from longer-term bonds that might not do as well today as they did in the past, barring (of course) an unforeseen recession.

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Slide 3: April key insights

So with that, I’ll leave you with three key themes to sum up the month:

We’re still overweight U.S. equities, and continue to prefer quality. We believe that the momentum propelling growth stocks could continue, and expect high levels of dispersion to drive greater alpha-generating opportunities. We like bonds over cash, and are preparing for the Fed to pivot this summer via active curve positioning and through selective exposure to “plus” sectors. We see the most value in the belly of the curve, and are complementing high quality exposures with higher yielding assets that should continue to hold up well given our positive economic outlook. And last, we believe alternatives will continue to play a huge role in portfolios. The risk and correlation of core bonds have risen over the past few years, making additional sources of equity diversification critical. We look in particular for strategies with low correlations to stocks and bonds that can capitalize on still-high cash rates.

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Slide 16: Navigate uncertainty with BlackRock

Check out the full Advisor Outlook deck for more of our best thinking, and if you have any questions or want to talk about what any of these ideas mean for you, please reach out to your local BLK market team or call (877) ASK-1BLK.