Staying dynamic in our strategic views
Market take
Weekly video_20240520
Vivek Paul
Opening frame: What’s driving markets? Market take
Camera frame
In this volatile economic regime, we stay dynamic on a strategic horizon of five years or more to take advantage of valuation-driven opportunities.
Title slide: Staying dynamic in our strategic views
While valuations may not always drive short-term results, they are pivotal over the long term.
Our granular approach targets areas we see as having comparatively attractive valuations, like emerging market equity, where we go overweight for the first time since 2020.
1: Emerging market stocks
We see broad emerging market stock valuations as attractive. We look at equity the risk premia, one key valuation metric, which shows emerging market equities are at their cheapest relative valuations to develop markets in nearly four years.
We see opportunities in Mexico, India and Saudia Arabia, countries that we see at the cross current of many mega forces.
2: Developed market bonds
We remain neutral developed market stocks and stay selective, with a preference for Japan.
We’re overweight developed market government bonds for the first time in over four years – notably in short-dated and long-dated bonds outside of the U.S.
3: Inflation-linked bonds
We still see inflation getting closer to 3% over the long run, which we do not see priced into fixed income markets. That underpins our strategic preference for inflation-linked bonds.
Outro: Here’s our Market take
We prefer emerging markets over developed market equities given relative valuations but stay selective in both. We like inflation-linked bonds in a high-for-longer rate regime.
Closing frame: Read details:
www.blackrock.com/weekly-commentary.
We stay dynamic on a strategic horizon to take advantage of sharp valuation shifts. We go overweight emerging market stocks for the first time since 2020.
U.S. stocks hit all-time highs while 10-year yields fell after the CPI data met expectations. We think the Fed needs to see inflation cooling more to cut rates.
We eye Japan inflation data this week and the implications for the Bank of Japan. We see the BOJ supporting the return of mild inflation and wage growth.
We see the new macro regime of greater volatility causing more frequent valuation shifts between asset classes. Valuations may not always drive short-term results but matter long term. Staying dynamic – even on a strategic horizon of five years and longer – creates opportunities to capitalize on these shifts. Getting granular allows us to target areas where we see the most repricing potential, like emerging market (EM) stocks. We go overweight developed market (DM) government bonds.
Market backdrop
U.S. stocks notched fresh 2024 highs last week, while U.S. 10-year Treasury yields fell to around 4.40% – about 35 basis points below this year’s peak. The U.S. CPI met consensus expectations and broke a three-month streak of hotter-than-expected readings. While the data may give the Federal Reserve some comfort that the previous upside surprises were anomalies, we think the Fed needs more evidence of inflation coming down to start cutting policy rates.
We watch Japan inflation data for the Bank of Japan policy implications. We think the BOJ will be slow to tighten policy to support the return of mild inflation and healthy wage growth. Global flash PMIs will provide an update on whether growth momentum is picking up, if slowly, in the euro area and cooling in the U.S. The U.S. durable goods report will be in focus for another snapshot of how the industrial part of the economy is holding up.
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 May 16, 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.
Japan trade data; UK CPI
Global flash PMIs
Japan CPI; U.S. durable goods
Read our past weekly market commentaries here.
On the go?
