Market Updates

BlackRock are entering a new market regime unlike any in the past half century: They expect another year of positive global stocks returns coupled with a down year for bonds. Central banks are set to start raising rates but remain more tolerant of inflation as the restart rolls on.

Last week, equity markets shrugged off concerns over the new Omicron COVID-19 variant and saw a sharp rebound. Tuesday’s strong gains felt more to do with positioning rather than fundamentals, but markets held on to gains and ended the week comfortably in positive territory.

A new, highly contagious, virus strain could trigger growth downgrades, worsen risk sentiment and have significant sectoral impact. BlackRock are concerned about the human toll and expect renewed restrictions on activity. They still favor equities for now, but would change their stance if vaccines or were to prove futile.

Whilst there has been a lot of noise around the new variant, we are still waiting for full clarity on the severity of illness, vaccine efficacy and the likelihood of reinfection. Market volatility remains high.

A new, highly contagious, virus strain could trigger growth downgrades, worsen risk sentiment and have significant sectoral impact. BlackRock are concerned about the human toll and expect renewed restrictions on activity. They still favor equities for now, but would change their stance if vaccines or were to prove futile.

News of the COVID-19 variant that emerged in South Africa (named Omicron) shook sentiment on Friday, prompting sharp declines. Looking ahead, it will be important to watch how this latest COVID news feeds into central bank thinking, with money markets already repriced the timeline for potential rate hikes further out.

As U.S. inflation is hitting three-decade highs, market talk has been all about “liftoff:” When will the Federal Reserve and others start raising their policy rates? This is old news in emerging markets (EMs), where many countries have already raised rates to try to tamp down inflation.

We saw a clear shift in sentiment on lockdowns last week, as countries across Europe continue to hit new daily case records and death rates increase again.

Inflation remains front and centre. Strong US inflation data raised fears that the Federal Reserve is behind the curve and would need to take more hawkish action in the future.

Climate change and the transition to a low-carbon future will be a key driver of long-term asset returns. BlackRock have seen encouraging development from the ongoing UN climate summit (COP26). There are risks to that path.