Our latest market views

By BlackRock Investment Institute

We see the steady global expansion rolling on, underpinned by above-trend US growth. Yet the range of potential economic outcomes is widening. Gradual increases in US rates are tightening financial conditions globally, and have contributed to bouts of volatility and sharply depreciating emerging market (EM) currencies. We also take a deep dive into the prospects for EMs after an unexpectedly drawn-out selloff.

Paragraph-2,Video Player-1,Accordion-1
Paragraph-3,Video Player-2,Accordion-2
Paragraph-4,Video Player-3,Accordion-3

A solid near-term global growth outlook is clouded by persistent and elevated uncertainties. Above-trend US growth is underpinning G7 gross domestic product. US fiscal spending is picking up into year-end, keeping the risk of economic overheating on our radar. Trade tensions show few signs of abating. Tariffs have potential to disrupt corporate supply chains and dent business confidence.

Our base case … we still think global growth will be steady and will push forward through the rest of 2018.

- Terry Simpson, Multi-Asset Investment Strategist, BlackRock Investment Institute
  • View transcript

    Terry Simpson :

    For our first theme for Q4 outlook, we see wider range of growth outcomes. While we still see steady, above-trend global growth happening in 2018, really being led by United States, even in China, we should actually see stable resilient growth. However, we’ve had a rise in macro uncertainty. Now this rise in macro uncertainty is being driven by one, fears of an overheating US economy, given we are late in the economic cycle, but also secondarily, the rise of the trade conflict between the United States and other global peers. However, again our base case is we still think global growth will be steady and will push forward through the rest of 2018.

Gradually increasing US interest rates are tightening financial conditions globally. A stronger dollar – as a result – exacerbated the troubles of the most vulnerable EM economies. Higher US rates also add to EM stress by creating competition for capital. Investors can now receive decent returns in US short-term bonds without having to take major credit and duration risk. As a result, investors have reset their return expectations for riskier assets, especially EM assets and equities broadly.

Tighter financial conditions manifest themselves in three key areas in financial markets: higher interest rates, a higher risk premium, and a stronger dollar.

- Jeff Rosenberg, Chief Fixed Income Strategist, BlackRock Investment Institute
  • View transcript

    Jeff Rosenberg :

    Rising macro uncertainty and less easy monetary policy combined to form tighter financial conditions, the second of our key themes for the quarterly outlook for 2018. Tighter financial conditions manifest itself in three key areas in financial markets. The first is higher interest rates, the second is a higher risk premium, and the third is a stronger dollar. Most notably, the stronger dollar and tighter financial conditions showed up in the form of weakening prices and higher volatility in assets both debt and equity in emerging markets. The implications of tighter financial conditions is a theme for investors, show up mainly in the fixed income portfolio. Here, we see the restoration of value, interest rates above the level of inflation, restoring the risk and reward attraction of the short end of the yield curve. This is one area where we see some of the best risk adjusted returns for investors. Secondly the role of fixed income as ballast against our equity portfolios highlights the need and attraction of moving up in quality in the fixed income portfolio exposures. This helps to secure the role of ballast in fixed income against our more positive views on equity risk and our equity overweights.

The increased volatility in the market as a result of rising macro uncertainty and tighter financial conditions argues for a greater focus on portfolio resilience. US equities top our “like” list. We favour the momentum factor, but see a role for quality exposures as a buffer. In fixed income, we like short-term bonds in the US and take an up-in-quality stance in credit. We also like selected hard-currency EM debt over the local variety. Valuations are more attractive and we see better insulation from further currency depreciations.

We have decided to temper our risk stance … The way we’ve done this is try to focus on different segments of the markets that give us buffers to macro and potentially market shocks.

- Terry Simpson, Multi-Asset Investment Strategist, BlackRock Investment Institute
  • View transcript

    Terry Simpson :

    So how do you combine these first two themes, a wider range of growth outcomes as well as tighter financial conditions? From a portfolio construction exercise, this had led us to our third theme of greater portfolio resilience. When we think about our risk stance right now across portfolios from a BlackRock perspective, while we still think risk assets will benefit portfolios, we have decided to temper our risk stance down just a hair. And the way that we’ve done this is try to focus on different segments of the markets that really give us buffers in our portfolios to macro and potentially market shocks. So we still remain overweight US equities, we like the opportunities there, but we are also still overweight emerging market equities, particularly emerging market Asia. We think the correction in valuations has priced in some of the fears over trade conflicts, and so we’re actually remaining overweight emerging market equities. Also from a factor perspective, while we continue to be overweight momentum, which is a risk on factor, the other thing we try to do is balance out that from a diversification standpoint and still continue to recommend actually quality as a factor to offer another buffer for portfolios. From a fixed income perspective, we want to be up in quality across the credit spectrum, both in corporate, but as well even in emerging market debt. And then lastly, from a thematic perspective, we think investors should think about ESG investing, which has shown benefits for diversification but as well as alpha opportunities.

EM downdraft

This year’s EM troubles stem from a potent cocktail of negatives. And EM currencies have borne the brunt of the recent selloff. The biggest casualties: currencies of EM economies with the largest current account deficits and highest external debt burdens. See our BlackRock emerging markets marker for details. Volatility in EM currencies has spiked to higher levels than during the 2013 “taper tantrum” – when then Fed Chair Ben Bernanke signaled the beginning of the end of new asset purchases. Yet there has been no visible contagion to other global asset classes. See the Crisis as usual chart.

Key insight
"Country-specific EM fragilities came home to roost this year — yet we don’t see these as a threat to global markets."
Read now Read now

Fund flows

We have seen a trickle of outflows from EM funds, but no signs of investor capitulation yet. This is playing out in both EM debt and equities, but with important differences: The current swoon follows a period of heavy inflows into EM debt strategies, as easy monetary policies depressed yields and pushed investors into riskier alternatives. By contract, flows into EM equities since 2016 have been more muted. See the Turning tide? chart.

Key insight
"We see room for renewed flows into EM assets — particularly in equities, where investors are lightly positioned."
Read now Read now

Fixed income

Hard-currency EM debt is gaining some appeal. Yields have risen to the top of their range this decade, erasing the usual gap with local currency yields. See the Hard currency preferred chart. Too soon to jump back in? Our analysis of the history of EM hard-currency debt selloffs since 1994 shows that each time after selloffs of the current magnitude, total returns were positive in the next 12 months. We are not quite there yet in local-currency debt, we found.

Key insight
"We prefer selected hard-currency EMD, and are mostly steering clear of the local-currency variety."
Read now Read now


It still pays to take risk in equities, we believe. Robust 2018 earnings estimates make the US our favoured region. A duller earnings outlook and looming political risks have us less enthusiastic about Europe, while Japanese equities lack a clear catalyst to propel performance. We haven’t lost confidence in EMs, where economic strength is starting to translate into sustained strong earnings growth for the first time in a decade. The recent selloff has restored a lot of value, and EMs are now trading at a large discount to DM equities. See the On sale chart.

Key insight
"The 2018 selloff has restored value in EM, one of our favoured regions."
Read now Read now

Asset class views

Tactical views on assets, October 2018


Asset Class View Comments
Equities US icon-up Strong earnings momentum, corporate tax cuts and fiscal stimulus underpin our positive view. We like the momentum factor and see a role for quality exposures amid steady global growth but rising uncertainty around the outlook. Technology tops our list of favoured sectors.
Europe icon-down Relatively muted earnings growth, weak economic momentum and political risks are challenges. A value bias makes Europe less attractive without a clear catalyst for value outperformance. We prefer higher-quality, globally-oriented names.
Japan The market’s value orientation is a challenge without a clear growth catalyst. Yen appreciation is another risk. Positives include shareholder-friendly corporate behaviour, solid company earnings and support from Bank of Japan stock buying.
EM icon-up Attractive valuations, along with a backdrop of economic reforms and robust earnings growth, support the case for EM stocks. We view financial contagion risks as low. Uncertainty around trade is likely to persist, though a lot of it has been priced in. We see the greatest opportunities in EM Asia on the back of strong fundamentals.
Asia ex Japan icon-up The economic and earnings backdrop is encouraging, with near-term resilience in China despite slower credit growth. We like selected Southeast Asian markets but recognise a worse-than-expected Chinese slowdown or disruptions in global trade would pose risks to the entire region.
Fixed Income US government bonds icon-down We see rates rising moderately amid economic expansion and Fed normalisation. Longer maturities are vulnerable to yield curve steepening but should offer portfolio ballast amid any growth scares. We favour shorter-duration and inflation-linked debt as buffers against rising rates and inflation. We prefer 15-year mortgages over their 30-year counterparts and versus short-term corporates.
US municipals Solid retail investor demand and muted supply are supportive, but rising rates could weigh on absolute performance. We prefer a neutral duration stance and up-in-quality bias in the near term. We favour a barbell approach focused on two- and 20-year maturities.
US credit Sustained growth supports credit, but high valuations limit upside. We favour investment grade (IG) credit as ballast to equity risk. We believe higher-quality floating rate debt and shorter maturities look well positioned for rising rates.
European sovereigns icon-down The ECB’s negative interest rate policy has made yields unattractive and vulnerable to the improving growth outlook. We expect core eurozone yields to rise. Valuations in the periphery appear tight. The exception is Italy, where spreads are reflecting simmering political risks. The upcoming end to the ECB’s net asset purchases could dampen appetite for the asset class.
European credit icon-down Increased issuance and political risks have widened spreads and created some value. Negative rates have crimped yields — but rate differentials make currency-hedged positions attractive for US-dollar investors. We are cautious on subordinated financial debt despite cheaper valuations.
EM debt We prefer hard-currency over local-currency debt and developed market corporate bonds. Slowing supply and broadly strong EM fundamentals add to the relative appeal of hard-currency EM debt. Trade conflicts and a tightening of global financial conditions call for a selective approach.
Asia fixed income Stable fundamentals, cheapening valuations and slowing issuance are supportive. China’s representation in the region’s bond universe is rising. Higher-quality growth and a focus on financial sector reform are long-term positives, but a sharp China growth slowdown would be a challenge.
Other Commodities and currencies * A healthy inventory balance underpins oil prices. Trade tensions add downside risk to industrial metal prices. We are neutral on the US dollar. Rising global uncertainty and a widening US yield differential with other economies provide support, but an elevated valuation may constrain further gains.

icon-up Overweight Neutral icon-down Underweight

* Note: Views are from a US dollar perspective as of September 2018. *Given the breadth of this category, we do not offer a consolidated view.

Global Chief Investment Strategist, BlackRock Investment Institute
Richard Turnill is Global Chief Investment Strategist for BlackRock. He was previously Chief Investment Strategist for BlackRock’s Fixed Income and active ...
Head of Economic and Markets Research
Chief Multi-Asset Strategist
Chief Equity Strategist
Chief Fixed Income Strategist

This material is prepared by BlackRock and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of October 2018 and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. This material is intended for information purposes only and does not constitute investment advice or an offer or solicitation to purchase or sell in any securities, BlackRock funds or any investment strategy nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

In the U.S., this material is intended for public distribution. In Canada, this material is intended for permitted clients only, is for educational purposes only, does not constitute investment advice and should not be construed as a solicitation or offering of units of any fund or other security in any jurisdiction. In the EU issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Conduct Authority). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. This material is for distribution to Professional Clients (as defined by the FCA Rules) and Qualified Investors and should not be relied upon by any other persons. For qualified investors in Switzerland, this material shall be exclusively made available to, and directed at, qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006, as amended. Issued in the Netherlands by the Amsterdam branch office of BlackRock Investment Management (UK) Limited: Amstelplein 1, 1096 HA Amsterdam, Tel: 020 - 549 5200. In South Africa, please be advised that BlackRock Investment Management (UK) Limited is an authorised Financial Services provider with the South African Financial Services Board, FSP No. 43288. In Dubai: This information can be distributed in and from the Dubai International Financial Centre (DIFC) by BlackRock Advisors (UK) Limited – Dubai Branch which is regulated by the Dubai Financial Services Authority (“DFSA”) and is only directed at ‘Professional Clients’ and no other person should rely upon the information contained within it. Neither the DFSA or any other authority or regulator located in the GCC or MENA region has approved this information. This information and associated materials have been provided for your exclusive use. This document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution would be unlawful under the securities laws of such. Any distribution, by whatever means, of this document and related material to persons other than those referred to above is strictly prohibited. For investors in Israel: BlackRock Investment Management (UK) Limited is not licensed under Israel’s Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995 (the “Advice Law”). No action has been taken or will be taken in Israel that would permit a public offering or distribution of the products mentioned in this document to the public in Israel. The products mentioned in this document have not been approved by the Israel Securities Authority. In addition, the products mentioned in this document are not regulated under the provisions of Israel’s Joint Investment Trusts Law, 5754-1994 (the “Joint Investment Trusts Law”). This document has not been approved by the Israel Securities Authority and will only be distributed to Israeli residents in a manner that will not constitute “an offer to the public” under sections 15 and 15a of the Israel Securities Law, 5728-1968 (the “Securities Law”) or section 25 of the Joint Investment Trusts Law, as applicable. This document and the products mentioned herein are being offered to those categories of investors listed in the First Addendum (the “Addendum”) to the Securities Law, (“Institutional Investors”); in all cases under circumstances that will fall within the private placement or other exemptions of the Joint Investment Trusts Law, the Securities Law and any applicable guidelines, pronouncements or rulings issued from time to time by the Israel Securities Authority. This document may not be reproduced or used for any other purpose, nor be furnished to any other person other than those to whom copies have been sent. Nothing in this document should be considered investment advice or investment marketing as defined in the Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995. This document does not constitute an offer to sell or solicitation of an offer to buy any securities, nor does it constitute an offer to sell to or solicitation of an offer to buy from any person or persons in any state or other jurisdiction in which such offer or solicitation would be unlawful, or in which the person making such offer or solicitation is not qualified to do so, or to a person or persons to whom it is unlawful to make such offer or solicitation. In Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N) for use only with institutional investors as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore. In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. This material is for distribution to “Professional Investors” (as defined in the Securities and Futures Ordinance (Cap.571 of the laws of Hong Kong) and any rules made under that ordinance.) and should not be relied upon by any other persons or redistributed to retail clients in Hong Kong. In South Korea, this material is issued for the exclusive use of the recipient who warrants by receipt of this material that they are a Qualified Professional Investors. In Taiwan, independently operated by BlackRock Investment Management (Taiwan) Limited. Address: 28F., No. 100, Songren Rd., Xinyi Dist., Taipei City 110, Taiwan. Tel: (02)23261600. In Japan, this is issued by BlackRock Japan. Co., Ltd. (Financial Instruments Business Operator: The Kanto Regional Financial Bureau. License No375, Association Memberships: Japan Investment Advisers Association, the Investment Trusts Association, Japan, Japan Securities Dealers Association, Type II Financial Instruments Firms Association.) For Professional Investors only (Professional Investor is defined in Financial Instruments and Exchange Act) and for information or educational purposes only, and does not constitute investment advice or an offer or solicitation to purchase or sells in any securities or any investment strategies. Issued in Australia and New Zealand by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230 523 (BIMAL) for the exclusive use of the recipient who warrants by receipt of this material that they are a wholesale client and not a retail client as those terms are defined under the Australian Corporations Act 2001 (Cth) and the New Zealand Financial Advisers Act 2008 respectively. BIMAL is the issuer of financial products and acts as an investment manager in Australia. BIMAL does not offer financial products to persons in New Zealand who are retail investors (as that term is defined in the Financial Markets Conduct Act 2013 (FMCA)). This material does not constitute or relate to such an offer. To the extent that this material does constitute or relate to such an offer of financial products, the offer is only made to, and capable of acceptance by, persons in New Zealand who are wholesale investors (as that term is defined in the FMCA). This material has not been prepared specifically for Australian or New Zealand investors and may contain references to dollar amounts which are not Australian or New Zealand dollars and financial information which are not prepared in accordance with Australian or New Zealand law or practices. In China: This material may not be distributed to individuals resident in the People’s Republic of China (“PRC”, for such purposes, excluding Hong Kong, Macau and Taiwan) or entities registered in the PRC unless such parties have received all the required PRC government approvals to participate in any investment or receive any investment advisory or investment management services. For other countries in APAC: This material is provided for your informational purposes only and must not be distributed to any other persons or redistributed. This material is issued for Institutional Investors only (or professional/sophisticated/qualified investors as such term may apply in local jurisdictions) and does not constitute investment advice or an offer or solicitation to purchase or sell in any securities, BlackRock funds or any investment strategy nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. In Latin America and Iberia, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or buy any shares of any fund or security and it is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of your relevant jurisdiction. If any funds are mentioned or inferred in this material, such funds may not been registered with the securities regulators of Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain Uruguay or any other securities regulator in any Latin American or Iberian country and thus, may not be publicly offered in any such countries. The securities regulators of any country within Latin America or Iberia have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America or Iberia. The contents of this material are strictly confidential and must not be passed to any third party.

©2018 BlackRock, Inc. All Rights Reserved. BLACKROCK is a registered trademark of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.