BlackRock Commentary: Pockets of value in stocks as rates rise

Wei Li – Global Chief Investment Strategist, Kurt Reiman – Senior Strategist for North America, and Michel Dilmanian – Investment Strategist all forming part of the BlackRock Investment Institute, share their insights on global economy, markets and geopolitics. Their views are theirs alone and are not intended to be construed as investment advice.

Key Points

Value vs, growth: We think value stocks can outperform as interest rates head higher. Regions and sectors help us find quality within value and growth at a reasonable price.

Market backdrop: Stocks slid after the Federal Reserve’s preferred inflation gauge showed persistently high inflation, reinforcing why we see more rate hikes ahead. 

Week ahead: We see a tight labor market in the euro area keeping core inflation elevated. China’s services PMI should show the economy’s rapid restart is playing out.

Growth stocks have led the U.S. equity rally so far this year, halting outperformance in 2022 by value equities. We believe value stocks can resume their climb as major central banks keep interest rates higher for longer. Higher rates reduce the value of future cash flows, weighing more on growth stocks and reinforcing our developed market equities underweight. Underneath that, our sector and region preferences tilt to value with quality attributes and growth at a reasonable price.

Value vs. Growth

The new regime is not a typical business cycle and requires a new playbook. That applies to equity style factors, too, in our view. Value stocks – or those seen as undervalued relative to fundamentals – lagged growth stocks for much of the past decade (left chart). That switched abruptly in 2022 when central banks started rapidly tightening policy – only to be followed by a value dip early this year on hopes for policy easing (right chart). We think value can regain the lead. Why? Higher interest rates and inflation, and a steeper yield curve. That all favors value over growth, in our view. It’s not about choosing one factor over another: Factors mean different things to different people, and the composition of factors also changes over time. Case in point: The healthcare sector is now a modest overweight in the MSCI USA Value index compared with an underweight in 2008.

Our macro view supports a case for value over growth. Higher interest rates feed into higher discount rates, making future cash flows of growth stocks less attractive. We also think persistent inflation is likely to lead investors to demand more compensation for holding long-term government bonds, driving yields higher. Value tends to outperform when the yield curve steepens, we find. While value historically underperforms heading into recession because capital-intensive companies can’t respond quickly to changing cycles, we think that could be different in this atypical economic cycle. Value is still attractive after being beaten down for so long. Companies in the value bucket have also had time to prepare for a well-telegraphed downturn. Case in point: Many banks have already provisioned for losses in advance of a recession. Lastly, we expect a mild recession, so we think the performance impact is likely to be softer on value companies than in past cycles.

Getting Granular

Our current asset allocations across regions and sectors have a value tilt with quality characteristics. We find that emerging markets (EM) and Europe have a consistent value bias when looking at the composition of indexes and key company metrics. For sectors, we see energy as a fusion of value and quality. We find value in the sector after being unloved and undisciplined with capital in the past. We think its stronger balance sheets, better investor payouts and improved return on equity give it more of a quality tilt. We find value in financials as well, but not the same quality. We see the sector capitalizing on higher rates with improved net interest margins after years of ultra-low or negative rates in some cases.

Healthcare has become more of a value sector but also has characteristics of growth. This speaks again to how factors can have different meanings and evolve over time. We like healthcare for its growth prospects but at the right price – valuations look reasonable to us relative to other growth sectors. We also see quality in healthcare’s defensive characteristics during a recession and think aging populations bolster structural growth in demand.

Bottom line

We prefer to be selective within our cautious view of developed market equities. We like sectors and regions with a value bent while we stay nimble in this new regime of heightened macro and market volatility. We think structurally higher inflation, higher-for-longer interest rates and our expectation for a steeper yield curve all favor value. We find value in the energy and financial sectors and focus on quality within these sectors. We also like healthcare but at a reasonable price.

Market backdrop

Global stocks retreated further this week, with European equities faring better than U.S. peers. Short-term U.S. yields jumped to a 16-year high, with the yield curve at its most inverted since the early 1980s. The U.S. PCE inflation data showed stubbornly high core inflation. This reinforces our view that sticky inflation likely means major central banks will have to hike rates further and keep them higher for longer to bring it back down to their 2% targets.

Euro area inflation data this week will be key for gauging how much higher the European Central Bank might lift policy rates. We’re also watching unemployment data for signs of further labor market tightness that could stoke persistently high core inflation. China’s services PMI will help assess how rapid the economy’s restart has been.

Week Ahead

Feb. 28: U.S. consumer confidence

Mar 1: U.S. ISM manufacturing PMI

Mar 2: Euro area unemployment and flash inflation

Mar 3: China Caixin services PMI

Euro area inflation data this week will be key for gauging how much higher the European Central Bank might lift policy rates. We’re also watching unemployment data for signs of further labor market tightness that could stoke persistently high core inflation. China’s services PMI will help assess how rapid the economy’s restart has been.

BlackRock’s Key risks & Disclaimers:

This material 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 21st February, 2023 and may change. The information and opinions are derived from proprietary and non-proprietary 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.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.

Issued by BlackRock Investment Management (UK) Limited, authorized and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL.

MeDirect Disclaimers:

This information has been accurately reproduced, as received from  BlackRock Investment Management (UK) Limited. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

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medirectalk to provide investment insights for 2023

As political and economic uncertainty continues to impact global markets, MeDirect Bank Malta is partnering with Morningstar – one of the world’s leading investment research firms – to present the latest in the series of medirectalk sessions. Taking place online on 9 March 2023 at 6.00pm, the event will provide investors with the opportunity to gain insights into what to expect this year, how to prepare for the future, which areas to avoid in terms of investments and where to tap opportunities.

The main speaker at this medirectalk will be Mike Coop, Morningstar’s EMEA Chief Investment Officer. Coop will deliver a 40-minute presentation titled ‘How to navigate a shifting landscape?’ which will be followed by a live question and answer session with participants.

Speaking about the webinar, Coop said: “Morningstar group and MeDirect have an ongoing collaboration through which we support the bank’s customers with data and independent in-depth insight and information on global markets and investments. This event will give me the very welcome opportunity to engage directly with MeDirect’s customers. I will be sharing our thoughts on how the extraordinary events of recent years have changed the investment landscape and what they can do to remain on track to achieve their financial goals.”

Morningstar was founded in Chicago in 1984 and is now a billion-dollar company with more than 8,000 employees worldwide. The company aims to give individual investors access to the same information available to financial institutions and professionals so they can take confident investment decisions. Operating in more than 25 countries, Morningstar now provides analysis on more than 600,000 investments.

Ingrid Micallef, Head – Products & Marketing Malta at MeDirect Bank Malta, said: “The medirectalk series is fast approaching its twentieth event. Throughout, we have provided market leading insights and analysis to our clients and investors from a range of global experts. Our mission is to give customers the tools they need to take control of their finances. In an ever changing, complex world, this next medirectalk in collaboration with Morningstar should prove extremely useful to anyone setting out their investment strategy for 2023.”

Medirectalk sessions are free to attend and open to the public. To register for the 9 March webinar, visit


The speakers themselves, personally or on behalf of the institutions they are representing, are not responsible for the opinions they express during the discussions.

The information given during these talks is for general information purposes only and is neither intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information given during the talks is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness. The financial instruments discussed may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

MeDirect Bank (Malta) plc, company registration number C34125, is licensed to undertake the business of banking in terms of the Banking Act (Cap. 371) and investment services under the Investment Services Act (Cap. 370).

Morningstar Investment Consulting France is a member of Morningstar’s Investment Management and Morningstar group, a leading provider of discretionary investment management and advisory services. Morningstar Investment Consulting France is authorised and regulated by the French Autorité de contrôle prudentiel et de resolution (ACPR) as an investment firm. SAS with a capital of 213,030 euros – RCS Paris 441 812 674 – APE 7022Z. Registered office: 52 rue de la Victoire 75009 Paris France. 

Morningstar Inc. is the ultimate parent of the Morningstar Group. Where any reference is made to Morningstar Inc. this incorporates all aspects of the Morningstar organisation and may reference services provided by regulated and non-regulated entities. Delivery of services, by MICF, is supported by appropriate arrangements established between MICF and other relevant Morningstar group entities captured under the Morningstar Inc. banner.


medirectalk se jkun qed jipprovdi għarfien dwar investimenti għall-2023

Hekk kif l-inċertezza politika u ekonomika tkompli tħalli impatt fuq is-swieq globali, MeDirect qed jissieħeb ma’ Morningstar, waħda mill-kumpaniji ewlenin tar-riċerka tal-investiment fid-dinja, biex jippreżenta attività oħra mis-serje ta’ medirectalk. L-avveniment, li se jsir onlajn fid-9 ta’ Marzu, 2023 fis-6.00pm, se jipprovdi opportunità lill-investituri li jiksbu tagħrif dwar x’għandhom jistennew matul is-sena kurrenti, kif għandhom jippreparaw għall-ġejjieni, liema oqsma ta’ investiment għandhom jiġu evitati u fejn jistgħu isibu opportunitajiet ġodda.

Il-kelliem ewlieni f’dln l-edizzjoni ta’ medirectalk se jkun Mike Coop, l-Uffiċjal Kap tal-Investimenti tal-EMEA ta’ Morningstar. Coop se jagħti preżentazzjoni ta’ madwar 40 minuta, bit-titlu ‘How to navigate a shifting landscape?’ li se tkun segwita minn sessjoni diretta ta’ mistoqsijiet u tweġibiet mal-parteċipanti.

Meta tkellem dwar il-webinar, Coop qal: “Morningstar group u MeDirect għandhom kollaborazzjoni kontinwa li permezz tagħha nassistu lill-klijenti ta’ MeDirect billi nipprovdu data, għarfien u informazzjoni indipendenti dwar is-swieq u l-investimenti globali. Dan l-avveniment se jagħtini l-opportunità sabiħa li nitkellem direttament mal-klijenti ta’ MeDirect. Se naqsam il-ħsibijiet tagħna dwar kif l-avvenimenti straordinarji ta’ dawn l-aħħar snin biddlu id-dinja ta’ l-investimenti u x’jistgħu jagħmlu biex jibqgħu fit-triq it-tajba u  jilħqu l-miri finanzjarji tagħhom.”

Morningstar twaqqfet f’Chicago fl-1984 u llum il-ġurnata hija kumpanija ta’ biljun dollaru b’aktar minn 8,000 impjegat madwar id-dinja. Il-kumpanija għandha l-għan li tagħti lill-investituri individwali aċċess għall-istess informazzjoni disponibbli għall-istituzzjonijiet finanzjarji u l-professjonisti. Dan sabiex ikunu jistgħu jieħdu deċiżjonijiet dwar l-investimenti tagħhom b’kunfidenza. Morningstar topera f’aktar minn 25 pajjiż u tipprovdi analiżi fuq aktar minn 600,000 investiment.

Ingrid Micallef, Head – Products & Marketing Malta, ta’ MeDirect , qalet: “Is-serje ta’ medirectalks qed toqrob malajr lejn l-għoxrin edizzjoni tagħha. Matul kull attività, ipprovdejna tagħrif u analiżi lill-klijenti u lill-investituri tagħna minn firxa ta’ esperti globali. Il-missjoni tagħna hija li nagħtu lill-klijenti l-għodda li jeħtieġu biex jieħdu l-kontroll tal-finanzi tagħhom. F’dinja kumplessa u li dejjem qed tinbidel, dan il-medirectalk li jmiss b’kollaborazzjoni ma’ Morningstar għandu jkun estremament utli għal kull min qed jistabbilixxi l-istrateġija ta’ investiment tiegħu għall-2023.”

Dan il-medirectalk huwa miftuħ għall-pubbliku u huwa bla ħlas.  Biex tirreġistra għall-webinar tad-9 ta’ Marzu, żur

Il-kelliema nfushom, personalment jew f’isem l-istituzzjonijiet li qed jirrappreżentaw, mhumiex responsabbli għall-opinjonijiet li jesprimu waqt id-diskussjonijiet.

L-informazzjoni mogħtija waqt dawn it-taħditiet hija għal skopijiet ta’ tagħrif ġenerali biss u mhix maħsuba ghal skopijiet legali jew pariri professjonali oħra u lanqas ma tikkommetti lil MeDirect Bank (Malta) plc għall-ebda obbligu.  L-informazzjoni mgħoddija waqt it-taħditiet mhijiex maħsuba biex tkun suġġeriment, rakkomandazzjoni jew solleċitazzjoni biex dak li jkun jixtri, iżżomm jew ibigħ xi titoli u l-eżattezza jew il-kompletezza tagħha mhix garantita.  L-istrumenti finanzjarji diskussi jistgħu ma jkunux jgħoddu għall-investituri kollha u l-investituri għandhom jieħdu d-deċiżjonijiet  tagħhom fuq il-bażi ta’ informazzjoni u pariri li jkunu kisbu huma stess dwar kemm ikun xieraq għalihom  li jinvestu fi strumenti finanzjarji jew li jimplimentaw  l-istrateġiji diskussi f’dan il-webinar.

MeDirect Bank (Malta) plc, huwa liċenzjat biex joffri servizzi bankarji skont it-termini tal-Att dwar Il-kummerċ Bankarju (Kap. 371) u servizzi ta’ investiment skont it-termini tal-Att dwar is-Servizzi ta’ Investiment (Kap. 370).

Morningstar Investment Consulting France hija membru ta’ Morningstar Investment Management u l-grupp Morningstar, fornitur ewlieni ta’ servizzi diskrezzjonali tal-investiment u ta’ konsulenza. Morningstar Investment Consulting France hija awtorizzata u regolata mill-Autorité de contrôle prudentiel et de resolution (ACPR) Franċiża bħala ditta tal-investiment. SAS b’kapital ta’ 213,030 ewro – RCS Paris 441 812 674 – APE 7022Z. Uffiċċju reġistrat: 52 rue de la Victoire 75009 Pariġi Franza.

Morningstar Inc. hija l-kumpanija ewlenija tal-grupp Morningstar. Fejn issir xi referenza għal Morningstar Inc., din tinkorpora l-aspetti kollha tal-organizzazzjoni Morningstar u tista’ tirreferi għal servizzi pprovduti minn entitajiet regolati u mhux regolati. Is-servizzi mill-MICF huma appoġġjata minn arranġamenti xierqa stabbiliti bejn l-MICF u entitajiet rilevanti oħra tal-grupp Morningstar.


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