Strategic Income Opportunities Fund Monthly Insight

Fiscal on standby

November 20, 2020

Close election results provides a lack of clarity on the fiscal front.

The Fed’s policy actions this year were historic in scale, range and speed relative to anything we’d seen before, including the aftermath of the global financial crisis, but now is the time for the central bank to sit back and watch, as it waits for further data and for greater clarity on the fiscal front, in the wake of the close election results.

The path of fiscal policy, and its timing, could take on significantly different trajectories depending on the individuals/parties that control the two segments of Congress, as well as the Presidency. Indeed, all else equal, we estimate that the level of real GDP through the end of next year could potentially vary by several percentage points depending on the degree of fiscal stimulus enacted. The Fed is very likely to retain accommodative policy at least through the end of next year, so the wildcard for the recovery is whether Congress and whichever future Administration is willing to step up with sensibly crafted, and well-targeted, fiscal policy to support the recovery until the pandemic is under greater control.

In the meantime, we slightly increased the BlackRock Strategic Income Opportunities Fund exposure to European credit and emerging markets in areas where valuations still look relatively attractive. It’s our view that accommodative Fed policy and investor demand for yield will continue to support these markets. We also modestly increased our exposures to securitized assets and continued to avoid sectors that face headwinds, such as retail, hotels, and office properties until we learn more about the likely trajectory of future fiscal policy, which would give the market a higher level of certainty and would dull unease.

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Bob Miller
Bob Miller
Head of U.S. Multi-Sector Fixed Income
Bob Miller, Managing Director, is head of the U.S. Multi-Sector Fixed Income team within BlackRock's Global Fixed Income group and a member of the Global Fixed Income ...
Rick Rieder
Rick Rieder
Chief Investment Officer of Global Fixed Income and Head of the Global Allocation Team
Rick Rieder, Managing Director, is BlackRock's Chief Investment Officer of Global Fixed Income, Head of the Fundamental Fixed Income business, and Head of the Global ...

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