Jean Boivin – Head of BlackRock Investment Institute together with Wei Li – Global Chief Investment
Strategis, Vivek Paul – Global Head of Portfolio Research, and Devan Nathwani – Portfolio 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
A new approach to portfolio construction : Static strategic asset allocation no longer suffices in a world shaped by mega forces. It’s crucial to revisit key calls and focus on underlying economic drivers.
Market backdrop : Investors went risk-off on AI fears in February. The S&P 500 notched its worst month in nearly a year and yields on 10-year U.S. Treasuries fell below 4%.
Week ahead : We’re watching labor data this week. We expect U.S. February payrolls data to show a resilient labor market, reaffirming the Fed’s new hawkish tone.%.
Renewed conflict in the Middle East, the software selloff and Nvidia’s earnings show mega forces reshaping markets in real time. These mega forces are well known, yet the scale and even direction of their long-run impact is uncertain. With no one long-term scenario, it’s crucial to assess calls more often and focus on fundamental economic drivers over asset class labels. On a strategic horizon of five years or longer, we go overweight high yield credit and like infrastructure.
The cross-currents of mega forces are shaping markets – now and long term. Geopolitical fragmentation is front and center as conflict escalates in the Middle East. The AI buildout keeps rolling on, as seen in Nvidia’s earnings, and the selloff in software marks a new focus on perceived AI losers. At the same time, fiscal and inflation anchors have weakened. The long-run economy could arrive at structurally different regimes, each with very different return expectations. That makes any set of long-run capital market assumptions conditional: it reflects one assumed path for the economy. This led us to begin tracking multiple scenarios last year. See the chart. Our starting point assumes sticky inflation limits interest rate cuts. AI-related gains could spark a breakout from 2% trend growth. This could also fail to occur, and further geopolitical fragmentation could push up risk premium for U.S. assets.
We have evolved our capital market assumptions (CMAs – for professional investors only) and portfolio construction approach to address this bifurcation. Many of these changes align with the broader industry shift towards total portfolio approach (TPA), though TPA itself is loosely defined and can mean many different things in practice. First, we revisit major portfolio judgements more often and set an explicit Plan B grounded in scenarios, with clarity on the portfolio changes those scenarios require. We review our CMAs quarterly and began incorporating explicit alternate scenarios as of Q2 last year.
Focusing on fundamental economic drivers
Second, we focus on fundamental economic drivers rather than asset class labels. Why? Broad asset class benchmarks are a blunt instrument for expressing views in an era of transformation. Mega forces do not show up uniformly across markets: their effects land in specific sectors, parts of the yield curve and balance sheet structures. Portfolio construction needs more granularity to reflect this. So, we shift the unit of analysis. Instead, we measure exposures at the whole portfolio level based on economic and factor drivers of return and risk. This is key for private assets, where benchmarks are less standardized.
Third, we budget portfolio risk holistically. Economic transformation raises dispersion within asset classes. That strengthens the case for treating alpha as an allocation decision, not an add-on. This includes setting clear rules for sizing alpha versus beta risk, and defining where private markets and hedge funds can fit into the risk budget.
We update our strategic views of five years or longer in our starting point scenario. We think the AI buildout will boost inflation and widen credit spreads. Inflation-linked bonds can offset the former. And high yield bonds – less sensitive to interest rate shifts – can offset the latter, so we go overweight. We see fiscal pressures pushing up yields on developed market bonds, so we go neutral. We’re also neutral developed market equities but stay overweight emerging market stocks. We get selective in private credit as dispersion grows. And we like infrastructure given it benefits from multiple mega forces.
Our bottom line
Static, set-it-and-forget-it strategic asset allocation (SAA) doesn’t work in a world where mega forces make long-term outcomes uncertain. Our SAA approach revisits key decisions, focuses on underlying drivers and sets a risk budget.
Market backdrop
The S&P 500 saw its biggest monthly drop since March 2025. Nvidia’s earnings beat failed to soothe mounting market anxiety about AI disruption and higher-than-expected wholesale inflation data reinforced concerns about sticky inflation. U.S. 10-year Treasury yields fell below 4.00% as fretful investors retreated to defensive assets. Brent crude oil gained nearly 4% last week on concerns about further conflict in the Middle East before the weekend developments.
We’re watching labor market data and flash PMIs around the world. We expect February U.S. payrolls to show ongoing labor market resilience – keeping the Federal Reserve on hold in coming months. The market is still pricing in two quarter-point rate cuts by year end. In the euro area, the February flash inflation data are likely to reinforce expectations that the European Central Bank is also on hold.
Week Ahead
March 2 : Global flash PMIs
March 3 : Euro area flash inflation; Japan unemployment
March 4 : Euro area unemployment
March 6 : U.S. payrolls; euro area revised
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 2nd March, 2026 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.
The financial instruments discussed in the document is intended for retail clients however, it 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.
If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Information Document (KID), which may be obtained from MeDirect Bank (Malta) plc.
