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Consensus forms at Outlook Forum

Market take

Weekly video_20240617

Nicholas Fawcett

Opening frame: What’s driving markets? Market take

Camera frame

BlackRock investment leaders recently met to discuss our Midyear Outlook.

There’s a growing consensus that interest rates will stay high for longer due to persistent inflation.

Title slide: Consensus forms at Outlook Forum

1: Higher rate reality hits

Seven months ago at our last Forum, markets were pricing in as many as seven Federal Reserve rate cuts.

Instead, the Fed has held rates steady and has started adjusting to the reality that rates will need to stay high for longer.

Market pricing has adjusted accordingly.

2: Higher inflation playing out

We see central banks forced to keep interest rates higher than before the pandemic. That's because structural constraints on supply are driving persistent inflation.

Many have pinned hopes on AI boosting productivity in the long term, easing inflationary pressure. Yet there’s a growing view among portfolio managers that the initial capital spending boom to unlock those gains could initially be inflationary.

Outro: Here’s our Market take

We think resilient growth supports our risk-on stance over a 6-12-month horizon and we don’t see an AI bubble.

The profitability of mega-cap tech companies stands in contrast to the dot-com bubble, and we stay overweight equities, technology and AI.

Look for details in our Midyear Outlook on July 9.

Closing frame: Read details:

www.blackrock.com/weekly-commentary

Near-term outlook

There’s broad agreement among portfolio managers that a concentrated group of AI winners will drive returns over a short-term tactical horizon.

Market backdrop

U.S. stocks hit record highs and bond yields fell after the May CPI came in below expectations. The Federal Reserve now only expects to cut rates once this year.

Week ahead

We’re watching the UK CPI data to see if falling goods prices are bringing inflation down enough for the Bank of England to start cutting policy rates.

BlackRock investment leaders met June 6-7 for our semiannual Outlook Forum. There’s a growing consensus among portfolio managers and central bankers that interest rates will stay higher for longer due to persistent inflation. We now think the artificial intelligence (AI) buildout could be inflationary in the near term – a shift in our view at the previous Forum that AI could cool inflation. We see a group of AI winners driving returns over a short-term tactical horizon of six to 12 months.

Download full commentary (PDF)

Market backdrop

U.S. stocks hit record highs and are up about 14% this year. U.S. 10-year Treasury yields fell roughly 20 basis points to near 4.20%. The U.S. CPI for May came in below expectations thanks to a broad moderation in core services inflation. The Fed held rates steady as expected and now sees only one rate cut this year. Yet the Fed’s data-dependence means we don’t put much weight on its policy signals. French government bond yields jumped on worries about the snap election outcome.

We await UK CPI data this week and expect the BOE to look toward August to cut rates. Despite upside surprises in core services, falling goods prices are offsetting sticky services inflation – dragging overall inflation lower. Still, the BOE has acknowledged the risk of heightened inflation, especially due to the impact of geopolitical tensions.

Week ahead

The chart shows that gold is the best performing asset year-to-date among a selected group of assets, while the German 10-year bund is the worst.

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 June 13, 2024. 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 U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.

June 19

UK CPI data; Japan trade data

June 20

Bank of England (BOE) policy decision; Philly Fed business index

June 21

Japan CPI; Global flash PMIs

Read our past weekly market commentaries here.

 

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Meet the Authors
Jean Boivin
Head – BlackRock Investment Institute
Wei Li
Global Chief Investment Strategist — BlackRock Investment Institute
Vivek Paul
Global Head of Portfolio Research – BlackRock Investment Institute
Nicholas Fawcett
Macro Research – BlackRock Investment Institute