Market insights

Weekly market commentary

Strategic reasons to get active

­Market take

Weekly video_20240220

Devan Nathwani

Opening frame: What’s driving markets? Market take

Camera frame

U.S. stocks recovered quickly after strong inflation data last week, highlighting that one data point won’t disrupt upbeat risk sentiment.

Title slide: Strategic reasons to get active

We’re tactically overweight U.S. stocks as we think that optimism can persist as inflation cools and the Federal Reserve prepares to cut rates. Over a strategic horizon we continue to be dynamic with our views and see a greater role for active strategies that generate above-benchmark returns.

1: Less consensus about macro indicators

We see less consensus and more uncertainty around key macro variables, like inflation, in the new volatile regime.

That elevated uncertainty is reflected in the dispersion of monthly returns for individual S&P 500 stocks which has settled at a higher level since 2020 than in the prior decade. As a result, we had opted to be more selective in U.S. stocks on a tactical horizon until this year.

2: A greater role for active strategies

In long-term portfolios, we find that skill and acting more frequently on good insights can be better rewarded now. We think mega forces, like geopolitical fragmentation, are likely to push up on inflation and result in lower inflation-adjusted returns. Long-term valuations for some broad asset classes also look too high to us when factoring in this outlook.

Outro: Here’s our Market take

We stay nimble as we expect inflation to resurge. We take a more active approach to investing over the long-term.

Closing frame: Read details:

www.blackrock.com/weekly-commentary.

More active long term

We think market optimism can persist for now but stay nimble. We get more active in our long-term portfolios given a greater dispersion of returns.

Market backdrop

U.S. stocks steadied after a brief dip on stronger-than-expected inflation data last week. We think that shows one data release won’t spoil upbeat risk appetite. 

Week ahead

Global manufacturing and services activity is in focus this week. The data may offer an early gauge of Q1 GDP growth as central banks hold policy rates steady.

U.S. stocks recovered after a hit from strong inflation data last week, highlighting one data point won’t disrupt buoyant risk appetite. We’re tactically overweight U.S. stocks as we think market optimism can persist for now. Yet we are strategically active – or ready to pivot our views as we expect resurgent inflation coming into view to spoil sentiment. In the long term, we see a greater role for active strategies that can produce above-benchmark returns due to richer asset valuations broadly.

Download full commentary (PDF)

Market backdrop

U.S. stocks steadied last week, recovering from a brief dip after U.S. CPI inflation data for January was stronger than expected. U.S. 10-year Treasury yields jumped as markets priced out Fed rate cuts – bringing markets closer to our expectations for rate cuts. We think the quick recovery in stocks highlights that one data release is not enough to spoil positive market sentiment for now. The Fed starting to cut rates and inflation nearing 2% should support stocks in the near term, but we stay nimble.

Global manufacturing and services activity is in focus this week, with global PMIs due for release, including for the U.S. and Europe. We look to the data as an early indication of Q1 GDP growth. We see interest rates in most developed markets remaining higher for longer than before the pandemic due to persistent inflationary pressures in the long term.

Week ahead

The chart shows that Brent crude is the best performing asset year-to-date among a selected group of assets, while gold 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 Feb. 15, 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.

Feb. 21

Euro area consumer confidence survey; Japan trade data

Feb. 22

Global flash PMIs

Feb. 23

Germany Ifo Business Climate Index

Read our past weekly market commentaries here.

 

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Meet the Authors
Wei Li
Global Chief Investment Strategist — BlackRock Investment Institute
Vivek Paul
Global Head of Portfolio Research – BlackRock Investment Institute
Devan Nathwani
Portfolio Strategist – BlackRock Investment Institute
Natalie Gill
Portfolio Strategist – BlackRock Investment Institute