January 15, 2020
The key drivers of performance in 2019 may have a different effect in 2020, but the backdrop suggests there’s growth around the bend.
U.S. stocks continued to rise in December, with major indices touching new record highs. A preliminary agreement with China to halt the trade war was a major catalyst, and improving Chinese industrial and retail sales data provided a boost. The outcome of the British election removed some Brexit uncertainty, improving sentiment and sending the British pound to its highest level since May.
The year’s third U.S. rate cut also helped drive higher stock prices and tighter credit spreads. We took the opportunity to modestly reduce high yield in the BlackRock Multi-Asset Income Fund. Instead, we added to agency mortgages, where spreads look attractive on a risk-adjusted basis after pre-payment concerns didn’t materialize. We also increased exposure to emerging market stocks, where valuations and opportunities appear more attractive in light of the preliminary trade deal and weaker U.S. dollar.
2019 saw meaningful market catalysts. Attractive valuations entering the year and the massive easing pivot among global central banks provided powerful tailwinds. On the other hand, trade and geopolitical tensions and a global manufacturing slowdown were headwinds. We anticipate these same areas – valuations, central bank policy, geopolitics and growth data – to continue to drive returns in 2020, but in different directions and magnitudes.
We expect less central bank stimulus going forward, making growth the key driver of returns in 2020. Our base case is for a mild pickup in growth as easier financial conditions filter though the global economy. The U.S. and China have incentives to pause their trade conflict, though tensions could still flare up between them and with other regions, notably Europe. Valuations are less attractive today compared to one year ago, and the extraordinary returns we saw last year are unlikely to recur; but overall, we view the current backdrop as one that paves the way for modest upside in global risk assets.
Michael Fredericks
Head of Income Investing for BlackRock Multi-Asset Strategies Team
Michael Fredericks, Managing Director, is head of Income Investing for the Blackrock Multi-Asset Strategies group and lead portfolio manager for the Multi-Asset Income, ...
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