Hard economic rules can bind quickly
Market take
Weekly video_20250428
Michel Dilmanian
Portfolio Strategist, BlackRock Investment Institute
Opening frame: What’s driving markets? Market take
Camera frame
We’ve flagged how economic rules could bind policy. This played out quickly last week with the U.S. softening its trade stance on China.
Title slide: Hard economic rules can bind quickly
1: Economic rules in play
Decoupling from China, bringing production closer to the U.S., and supply chain diversification are top U.S. strategic priorities. Yet such goals must confront a core economic rule: Global supply chains can’t be rewired quickly without major disruption.
Tariffs can raise costs, cut access to key inputs and potentially halt production. China is a key supplier of critical minerals, semiconductors, industrial parts, specialty chemicals and auto components.
2: Sectoral vulnerabilities
The binding effect of economic rules on trade policy means it will take time to rewire trade relationships and see the damage from tariffs.
So far, analysts have sharply cut estimates for 2025 earnings growth for the consumer discretionary and industrials sectors due to their reliance on foreign revenues and global supply chains.
3: What we’re eyeing
We look for signs of pressure in corporate commentary on supply chain disruptions, changes in the ability to pass costs to consumers and shifts in consumer demand.
For the 'magnificent seven' big tech companies, we’re eyeing changes to AI capital spending plans.
Outro: Here’s our Market take
Economic rules can bind policy quickly. That’s why we see policy uncertainty easing over the next six to 12 months, keeping us overweight developed market stocks.
Closing frame: Read details: blackrock.com/weekly-commentary
Binding economic rules
We’ve said economic rules could bind U.S. policy changes. Last week’s trade policy updates show how quickly these rules can bind when facing disruption.
Market backdrop
U.S. stocks rebounded last week and are now down less than 3% since the April 2 tariff news. U.S. 10-year yields fell but are still up sharply from their April lows.
Week ahead
This week, we eye April U.S. jobs data for early signs of how recent U.S. tariff announcements are affecting business confidence and hiring decisions.
We laid out two economic rules binding on attempts at abrupt U.S. policy changes: financing debt and supply chains. Supply chains can’t be rewired quickly without major disruption. Signs last week of the U.S. softening its trade stance on China show the second starting to bind as negotiations take shape. That’s why we see U.S. policy settling down on our tactical six- to 12-month horizon. We stay positive on developed market (DM) stocks yet see more near-term volatility.
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Deeply intertwined
China share of U.S. imports and their share of U.S. production, 2024
Source: BlackRock Investment Institute, U.S. Census Bureau, April 2025. Note: The chart shows the value of China’s imports relative to U.S. production (horizontal axis) vs. the share of China in total imports for that sector (vertical axis). Highlighted sectors are those with either outlying value or share of trade, or both. The dot for “Manufacturing” is the average of all U.S. manufacturing sectors.
U.S. stocks rose 14% from their April lows last week as the U.S. showed signs it may soften its trade stance on China – more evidence economic rules can limit what’s possible in trade negotiations, we think. We track these rules instead of trying to predict policy shifts. Decoupling from China, bringing production to the U.S., and supply chain diversification are U.S. strategic priorities. Yet global supply chains can’t be rewired quickly without major disruption – an economic rule. China is a key supplier of critical minerals, semiconductors, industrial parts and auto parts, U.S. Census data show. How intertwined are the economies? U.S. imports of computer and electronics are bigger than total U.S. production of these items. See the chart. Tariffs could up costs, cut access to key inputs and halt production. A cooling U.S. stance would point to growing awareness of the risks tied to a supply shock.
Big questions remain about the damage tariffs could cause, even if the binding effect of economic rules means it will take time to uproot current trade relationships. We see more cause for concern on the supply side, as disruptions could lower productivity and the growth trajectory – like the pandemic shock. Long-term capital spending could also be hurt by uncertainty as happened after the 2016 Brexit vote. To gauge how long the damage could last, we’re monitoring indicators like capital spending plans, consumer confidence, high-frequency data on port traffic and early reads on trade flows.
What we're eyeing
We look for signs of pressure on companies in earnings reports: think mentions of changes in supply chains, the ability to pass costs to consumers and consumer demand. For the “magnificent seven” of mostly big tech companies, we’re eyeing any changes in their plans for artificial intelligence (AI) capital spending given more efficient AI models and exposure to the trade war. In consumer goods, we are tracking guidance on any impacts from weakening consumer sentiment and potentially higher prices. Analysts have cut forecasts for 2025 S&P 500 earnings growth to about 9% from 14% in January, LSEG data show. Prolonged uncertainty could spur further cuts. The consumer discretionary and industrials sectors have suffered sharp declines for 2025 forecasts given their reliance on foreign revenues and global supply chains.
How to invest amid policy uncertainty? We think this calls for more dynamic portfolios. Economic rules help gauge where trade negotiations could settle, so we see uncertainty easing over six to 12 months. We stay positive on DM stocks but expect ongoing, near-term volatility. Our expectation for clarity and support from mega forces is why we favor some alterative assets on a strategic horizon of five years and longer. Policy uncertainty has caused dealmaking to slow as investors struggle to value assets near term. We see dealmaking resuming as clarity returns. Yet private markets are complex and aren’t suitable for all investors. We also like publicly listed real estate and infrastructure as they’ve diversified portfolios, outperforming U.S. large cap stocks since their February peak, Bloomberg data show. Plus, they stand to benefit from a host of mega forces.
Our bottom line
Economic rules can put bounds on the maximal stance in trade negotiations. We stay positive on DM stocks but expect ongoing, near-term volatility. We also favor publicly listed alternative assets as portfolio diversifiers.
Market backdrop
U.S. stocks jumped more than 4% last week and are now up 14% from a 14-month low hit earlier in the month, driven by tech. Yet uncertainty over tariffs has prompted more companies to withdraw or soften earnings guidance. Europe’s Stoxx 600 rose nearly 3% last week and is up roughly 10% from its April low. U.S. 10-year yields fell to near 4.25% but are still up about 40 basis points from their April low. The U.S. dollar inched up from three-year lows against major currencies.
We are closely monitoring the U.S. payrolls report out this week. The report could show early signs of changes in business confidence and hiring decisions even as the U.S. has paused tariffs announced on April 2 for most countries for 90 days. Recently strong jobs data had shown still elevated wage pressures. The pace of job gains was also not consistent with core inflation falling back near the Federal Reserve’s 2% target – even before factoring in the inflationary impact of tariffs.
Week ahead
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of April 24, 2025. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.
April 30
U.S. PCE
May 1
Bank of Japan policy decision
May 2
Euro area flash inflation data; U.S. payrolls
Read our past weekly commentaries here.
Meet the authors
Jean Boivin
Head – BlackRock Investment Institute
Wei Li
Global Chief Investment Strategist – BlackRock Investment Institute
Glenn Purves
Global Head of Macro – BlackRock Investment Institute
Michel Dilmanian
Portfolio Strategist – BlackRock Investment Institute
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.