Market Updates

Robust U.S. economic expansion and corporate earnings have bolstered risk sentiment, propelling stocks to record levels, despite notable increases in bond yields. BlackRock anticipates that earnings performance will be crucial in meeting elevated market expectations, particularly following recent data revealing persistent inflation concerns that unnerved investors.

The working-age populations in developed markets (DMs) are dwindling, contrasting with the growth observed in emerging markets (EMs). This trend adversely affects economic growth in DMs while bolstering growth prospects in EMs—a divergence that, according to BlackRock, is widely evident in asset valuations.

Yields surged as central banks raised rates to unprecedented levels, marking the onset of a new era for fixed income investments. BlackRock anticipates continued elevated yields despite potential rate cuts. They believe central banks will maintain higher rates for an extended period compared to pre-pandemic levels due to ongoing supply constraints.

Last week’s central bank actions buoyed market sentiment, prompting BlackRock to maintain a pro-risk stance in their tactical outlook for the next six to twelve months as Q2 begins. Despite lingering concerns about persistent U.S. inflation and diminishing expectations of Federal Reserve rate cuts, they observe that stock markets are resilient.

The upcoming Federal Reserve and Bank of Japan (BOJ) meetings, along with recent data, draw attention to the macroeconomic landscapes of the U.S. and Japan. While U.S. markets reflect optimism amid cooling inflation, BlackRock anticipates that positive risk appetite will remain largely unchallenged in the months ahead.

BlackRock is closely monitoring how the low-carbon transition is impacting investment returns, recognizing it as a significant force shaping the market landscape. They anticipate potentially market-moving developments in three key areas this year.

Focusing on details and staying adaptable to capitalize on opportunities in the evolving environment are fundamental principles guiding investors’ approach. While BlackRock previously favored investment-grade credit, they are now considering fixed income investments where spreads have not tightened as significantly. They continue to express interest in private credit.

BlackRock is optimistic about the potential continuation of Japan’s equity rally, distinguishing it from previous false starts. They anticipate that both macroeconomic trends and company-specific advancements will propel the next phase of growth. The anticipated corporate earnings growth, foreseen since 2023, is now materializing as expected.

U.S. stocks rebounded despite the impact of strong inflation data, suggesting resilience in investor risk tolerance. While maintaining an overweight position in U.S. stocks, BlackRock remain strategically active, prepared to adjust their stance in anticipation of potential inflation concerns.

BlackRock observes increased backing for emerging markets (EMs) amid the market’s positive outlook on risk assets, supported by sustained U.S. growth, moderating inflation, and the Federal Reserve’s readiness to lower policy rates. EMs have demonstrated resilience in the face of recent Fed rate hikes.