MARKET INSIGHTS

Weekly market commentary

Mar 17, 2025

Policy uncertainty a risk to U.S. growth

­Market take

Weekly video_20250313

Wei Li

Global Chief Investment Strategist, BlackRock

Opening frame: What’s driving markets? Market take – special edition

Camera frame

In this special edition of Market Take, I will dig into what’s behind the recent market volatility — especially in the U.S.

Title slide: A disconnect with economic fundamentals 

1. U.S. recession fears sparked a stock pullback.

We actually don’t think the selloff is consistent with the fundamental picture. You look at the strong job creation, you look at the still-good earnings expectations for this year, 12% [earnings growth] for [the] U.S. equity market [according to data from Bloomberg as of 12/03/2025]. They are consistent with an economy that is holding up okay.

Now, a rapid rotation out of very crowded positions contributed to stock market pressure in recent days. And the very high level of policy uncertainty further led to risk premia repricing, i.e. investors demanding more for holding risk in this environment. But over the six-to-12 month horizon we expect some of those [uncertainties] to dissipate.

2. Tech valuations look more compelling

The 'magnificent seven' forward [price-earnings ratio] in aggregate is [around] the same level as it was during the time of ChatGPT’s rollout.

When you look at the estimates for [the magnificent seven’s] [2025-26] earnings, revenue, operating margins, they haven’t worsened so far this year, notably. If you look at their [capital expenditure] commitments it’s even increased versus what was already a record year last year [according to data from Bloomberg as of 12/03/2025].

3. Selective opportunities in global markets and gold

We recently closed [our] underweight in European equities and we keep our tactical overweight in Chinese equities as some of these unloved and underowned exposures start to play catch-up.

And we also find that in this environment of inflationary pressure and high debt, gold has proven to be a better diversifier compared to long-term [government bonds].

Outro: Here’s our Market Take

The bottom line is we don’t think the market selloff is supported by economic fundamentals. Yet in the very near-term, very elevated policy uncertainty and positioning can keep the pressure up.

Over the horizon of six to 12 months, I would spotlight opportunities in tech that has become more attractive in valuation and also observe that gold can play a better role as diversifier than [long-term] [U.S.] Treasuries in portfolios.

Closing frame: Read details: blackrock.com/weekly-commentary

U.S. recession fears

Markets are doubting U.S. growth and equity strength. Yet economic conditions don’t signal a downturn. Resilient earnings keep us overweight U.S. stocks.

Market backdrop

Global stocks trimmed their losses last week. The S&P 500 was down 1% after briefly entering a technical correction as recession fears gripped markets.

Week ahead

We expect the Federal Reserve to hold rates steady at this week’s policy meeting. Markets have been pricing in deeper rate cuts due to fears about U.S. growth.

U.S. stocks slid as markets doubted the strength of U.S. growth and tech. We see a double disconnect. Economic conditions don’t point to recession, yet prolonged policy uncertainty may hurt growth. And the tech sector still has the strongest expected 2025 growth. We stay overweight U.S. stocks as policy uncertainty should ease over a six- to 12-month horizon. We don’t see long-term bonds as reliable portfolio diversifiers, even if growth suffers, given persistent deficits and inflation.

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Market commentary Asset class views
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Economic strength
U.S. payroll growth, actual and estimated, 2022-2025

The chart shows that U.S. job gains have slowed since 2022 but remain above the long-term level we expect given an aging workforce.

Forward looking estimates may not come to pass. Source: BlackRock Investment Institute, Bureau of Labor Statistics, with data from Haver Analytics, March 2025. Note: The chart shows U.S. payroll growth on a three-month average, overall payrolls growth and the estimate of where payrolls growth be when accounting for slowing population growth and usual migration flows.

The S&P 500 has slid 8% from its February high and 4% this year as investors worry U.S. policy changes will bite growth that has been key to U.S. outperformance. Yet fundamental, quantitative economic data doesn’t indicate a downturn is near. Job gains have slowed since 2022 but remain above the long-term level we expect given an aging workforce. See the chart. U.S. corporate earnings expectations and high-frequency indicators of consumer health like weekly credit card spending are also solid, JPMorgan data show. Yet near-term risks to growth loom: Uncertainty could hit consumer spending, investment and trade. The longer policy uncertainty lasts, the more growth could suffer – but even that’s not certain. U.S. policy is spurring government spending elsewhere, reinforcing our view that developed market policy rates and bond yields will stay well above pre-pandemic levels.

Markets have also questioned U.S. equity strength, especially for the tech sector. U.S. recession fears reignited the selloff in tech stocks. The Nasdaq has fallen 11% from its all-time high hit in February – the biggest retreat since the 2022 equity selloff. Yet we stay overweight U.S. stocks on a six- to 12-month tactical horizon. Earnings expectations are healthy, with 12% growth forecast for the S&P 500 this year versus 14% last September, LSEG Datastream data show. Tech corporate margins, earnings and revenues forecasts are holding up and the sector still has the fastest expected growth this year. Free cash flow for the sector is also at 30% of total sales, the highest share since 1990 – a sign of current strength.

Allocating for uncertainty

Recent volatility has been exacerbated by policy uncertainty and investors moving out of crowded positions. For example, last week saw a rapid move away from popular trades, like the tech-heavy momentum equity style factor that had some of its sharpest declines since the pandemic. Both could drive more volatility in the near term. But, over time, deleveraging will have run its course and uncertainty will likely ease as we get more policy implementation details, such as the White House’s full tariff plan due in April. Then, some of the risk premium investors now want for extreme uncertainty could be priced out again.

Long-term U.S. Treasuries have briefly buffered against the stock retreat. But their portfolio diversification role has weakened since the pandemic. We think yields can climb as investors demand more compensation, or term premium, for the risk of holding long-term bonds. Recent inflation data has been noisy, but core CPI is still above what’s consistent with the Federal Reserve’s 2% target. That limits how far the Fed will be able to cut. A likely rising U.S. fiscal deficit – even with revenue from tariffs and potential spending cuts – could also lead to higher term premium. In the past, investors saw long-term bonds as low risk even with heavy government debt loads because they believed low inflation and low interest rates were here to stay. But that fragile equilibrium has been disrupted. Germany’s plans to boost fiscal spending reinforce higher-for-longer rates – and bond yields – globally, we believe. We think gold could be a better diversifier than Treasuries in this environment.

Our bottom line

We think the biggest risk to U.S. growth is prolonged policy uncertainty. U.S. stocks could face more near-term pressure, but we stay overweight on our tactical horizon. We stay underweight long-term Treasuries as we see yields rising.

Market backdrop

Global equity markets trimmed their losses last week after the S&P 500 briefly entered technical correction territory Thursday, falling 10% from the February record peak. The S&P 500 rebounded on Friday to end the week down 1%, but it has slid 4% for the year near six-month lows as concerns about U.S. tariffs and a U.S. recession gripped markets. Ten-year U.S. Treasury yields were largely steady last week near 4.30% even with the equity selloff and lower-than-expected CPI inflation data.

All eyes are on the Federal Reserve policy meeting this week. We, like markets, don’t expect the Fed to cut at this week’s meeting. Yet markets have priced in about two to three 25 basis point rate cuts this year, versus expectations for just one earlier this year. We think this reflects U.S. recession fears even though economic condition don’t point to a downturn. Even if prolonged uncertainty hurts growth, we still see persistent inflation limiting how much the Fed can cut.

Week ahead

The chart shows that gold is the best performing asset year to date among a selected group of assets, while U.S. equities are 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 March 13, 2025. 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.

March 19

Fed policy meeting

March 20

Bank of England (BOE) policy meeting

March 21

Japan CPI

Read our past weekly market commentaries here.

 

Big calls

Our highest conviction views on tactical (6-12 month) and strategic (long-term) horizons, March 2025

  Reasons
Tactical  
U.S. equities Policy uncertainty may weigh on growth and stocks in the near term. Yet we remain overweight as we see the AI buildout and adoption creating opportunities across sectors and driving equity strength over our tactical horizon. We tap into beneficiaries outside the tech sector. We see valuations for big tech backed by strong earnings, and less lofty valuations for other sectors.
Japanese equities A brighter outlook for Japan’s economy and corporate reforms are driving improved earnings and shareholder returns. Yet the potential drag on earnings from a stronger yen is a risk.
Selective in fixed income Persistent deficits and sticky inflation in the U.S. make us underweight long-term U.S. Treasuries. We also prefer European credit – both investment grade and high yield – over the U.S. on more attractive spreads.
Strategic  
Infrastructure equity and private credit We see opportunities in infrastructure equity due to attractive relative valuations and mega forces. We think private credit will earn lending share as banks retreat – and at attractive returns.
Fixed income granularity We prefer DM government bonds over investment grade credit given tight spreads. Within DM government bonds, we favor short- and medium-term maturities in the U.S., and UK gilts across maturities.
Equity granularity We favor emerging over developed markets yet get selective in both. EMs at the cross current of mega forces – like India and Saudi Arabia – offer opportunities. In DM, we like Japan as the return of inflation and corporate reforms brighten the outlook.

Note: Views are from a U.S. dollar perspective, March 2025. 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 2025

Legend Granular

Our approach is to first determine asset allocations based on our macro outlook – and what’s in the price. The table below reflects this. It leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns. The new regime is not conducive to static exposures to broad asset classes, in our view, but it is creating more space for alpha. For example, the alpha opportunity in highly efficient DM equities markets historically has been low. That’s no longer the case, we think, thanks to greater volatility, macro uncertainty and dispersion of returns. The new regime puts a premium on insights and skill, in our view.

Asset   Tactical view Commentary
Equities      
United States   United States: tactical Overweight +2 We are overweight as the AI theme and earnings growth broaden. Valuations for AI beneficiaries are supported by tech companies delivering on earnings. Resilient growth and Fed rate cuts support sentiment. Risks include any long-term yield surges or escalating trade protectionism.
Europe   Europe: tactical Neutral 0 We are neutral, preferring the U.S. and Japan. We see room for more European Central Bank rate cuts, supporting an earnings recovery. Rising defense spending, as well as potential fiscal loosening and de-escalation in the Ukraine war are other positives.
U.K.   U.K.: tactical Neutral We are neutral. Political stability could improve investor sentiment. Yet an increase in the corporate tax burden could hurt profit margins near term.
Japan   Japan: tactical Overweight +1 We are overweight. A brighter outlook for Japan’s economy and corporate reforms are driving improved earnings and shareholder returns. Yet a stronger yen dragging on earnings is a risk.
Emerging markets   Emerging markets: tactical Neutral We are neutral. The growth and earnings outlook is mixed. We see valuations for India and Taiwan looking high.
China   China: Overweight+1 We are modestly overweight. We think AI and tech excitement could keep driving returns, potentially reducing the odds of much-anticipated government stimulus. We stand ready to pivot. We remain cautious given structural challenges to China’s growth and tariff risks.
Fixed income      
Short U.S. Treasuries   Short U.S. Treasuries: tactical Neautral We are neutral. Markets are pricing in fewer Federal Reserve rate cuts and their policy rate expectations are now roughly in line with our views.
Long U.S. Treasuries   Long U.S. Treasuries: tactical Underweight-2 We are underweight. Persistent budget deficits and geopolitical fragmentation could drive term premium up over the near term. We prefer intermediate maturities less vulnerable to investors demanding more term premium.
Global inflation-linked bonds   Global inflation -linked bonds : Neutral We are neutral. We see higher medium-term inflation, but cooling inflation and growth may matter more near term.
Euro area government bonds   Euro area govt bonds: -1 without the dot We are underweight. We see room for yields to climb more as Europe moves to ramp up defense and infrastructure spending. The European Central Bank is also nearing the end of rate cuts.
UK Gilts   UK gilts: neutral from OW +1 We are neutral. Gilt yields are off their highs, but the risk of higher U.S. yields having a knock-on impact and reducing the UK’s fiscal space has risen. We are monitoring the UK fiscal situation.
Japan government bonds   Japanese govt bonds: -1 without the dot We are underweight. Yields have surged, yet stock returns still look more attractive to us.
China government bonds   China government bonds: tactical Neutral We are neutral. Bonds are supported by looser policy. Yet we find yields more attractive in short-term DM paper.
U.S. agency MBS   U.S. agency MBS: tactical neutral 01 We are neutral. We see agency MBS as a high-quality exposure in a diversified bond allocation and prefer it to IG.
Short-term IG credit   Short-term IG credit: tactical Overweight +1 We are overweight. Short-term bonds better compensate for interest rate risk.
Long-term IG credit   Long-term IG credit: tactical Underweight -1 We are underweight. Spreads are tight, so we prefer taking risk in equities from a whole portfolio perspective. We prefer Europe over the U.S.
Global high yield   Global high yield: tactical Neutral We are neutral. Spreads are tight, but the total income makes it more attractive than IG. We prefer Europe.
Asia credit   Asia credit: tactical Neutral We are neutral. We don’t find valuations compelling enough to turn more positive.
Emerging market - hard currency   Emerging market-hard currency: tactical Neutral 00 We are neutral. The asset class has performed well due to its quality, attractive yields and EM central bank rate cuts. We think those rate cuts may soon be paused.
Emerging market - local currency   Emerging local currency: UW -1 from neutral We are underweight. We see emerging market currencies as especially sensitive to trade uncertainty and global risk sentiment.

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 U.S. 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 2025

Legend Granular

Asset Tactical view Commentary
Equities    
 Europe ex UK Europe ex-UK: tactical neutral We are neutral, preferring the U.S. and Japan. We see room for more European Central Bank rate cuts, supporting an earnings recovery. Rising defense spending, as well as potential fiscal loosening and de-escalation in the Ukraine war are other positives.
Germany Germany: tactical Underweight-1 We are underweight. Valuations and earnings momentum offer modest support compared to peers, especially as ECB rate cuts ease financing conditions. Prolonged uncertainty over the next government, potential tariffs, and fading optimism about China’s stimulus could dampen sentiment.
France France: tactical Underweight -1 We are underweight. The outcome of France’s parliamentary election and ongoing political uncertainty could weigh on business conditions for French companies. Yet, only a small share of the revenues and operations of major French firms is tied to domestic activity.
Italy Italy: tactical Underweight -1 We are underweight. Valuations are supportive relative to peers, but past growth and earnings outperformance largely stemmed from significant fiscal stimulus in 2022-2023, which is unlikely to be sustained in the coming years.
Spain Spain: tactical neutral We are neutral. Valuations and earnings momentum are supportive compared to other euro area stocks. The utilities sector stands to gain from an improving economic backdrop and advancements in AI.
Netherlands Netherlands: tactical Underweight -1 We are underweight. The Dutch stock market’s tilt to technology and semiconductors—key beneficiaries of rising AI demand—is offset by less favorable valuations and a weaker earnings outlook compared to European peers.
Switzerland Switzerland: tactical Underweight -1 We are underweight, consistent with our broader European view. Earnings have improved, but valuations remain elevated compared to other European markets. The index’s defensive tilt may offer less support if global risk appetite stays strong.
UK UK: tactical neutral We are neutral. Political stability could improve investor sentiment. Yet an increase in the corporate tax burden could hurt profit margins near term.
Fixed income    
Euro area government bonds Euro area government bonds: -1 without th dot We are underweight. We see room for yields to climb more as Europe moves to ramp up defense and infrastructure spending. The European Central Bank is also nearing the end of rate cuts.
German bunds German bunds: tactical neutral We are neutral. Market pricing aligns with our policy rate expectations, and 10-year yields have eased from their highs, partly due to growth concerns. We are watching the fiscal flexibility debate ahead of upcoming elections.
French OATs French OATs: tactical neutral We are neutral. France faces challenges from elevated political uncertainty, persistent budget deficits, and a slower pace of structural reforms. The EU has already warned the country for breaching fiscal rules, and its sovereign credit rating was downgraded earlier this year.
Italian BTPs Italian BTPs: tactical Neutral We are neutral. The spread over German bunds looks tight given its budget deficits and debt profile, prompting a warning from the EU. Other 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.
UK gilts UK gilts: tactical neutral We are neutral. Gilt yields are off their highs, but the risk of higher U.S. yields having a knock-on impact and reducing the UK’s fiscal space has risen. We are monitoring the UK fiscal situation.
Swiss government bonds Swiss government bonds: tactical neutral We are neutral. The Swiss National Bank has cut policy rates this year as inflationary pressures eased but is unlikely to reduce rates significantly further.
European inflation-linked bonds Euro area inflation-lined bonds: tactical neutral We are neutral. We see higher medium-term inflation, but cooling inflation and sluggish growth may matter more near term.
European investment grade credit European investment grade credit: tactical Neutral 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, as spreads are relatively wider.
European high yield European high yield: tactical Overweight +1 We are overweight. The income potential is attractive, and we prefer European high yield for its more appealing valuations, higher quality, and shorter duration compared to the US. In our view, spreads adequately compensate for the risk of a potential rise in defaults.

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 2025. 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.

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Meet the authors
Jean Boivin
Jean Boivin
Head – BlackRock Investment Institute
Wei Li
Wei Li
Global Chief Investment Strategist – BlackRock Investment Institute
Glenn Purves
Glenn Purves
Global Head of Macro – BlackRock Investment Institute
Nicholas Fawcett
Nicholas Fawcett
Senior Economist – BlackRock Investment Institute

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