Policy uncertainty a risk to U.S. growth
Market take
Weekly video_20250313
Wei Li
Global Chief Investment Strategist, BlackRock
Opening frame: What’s driving markets? Market take – special edition
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In this special edition of Market Take, I will dig into what’s behind the recent market volatility — especially in the U.S.
Title slide: A disconnect with economic fundamentals
1. U.S. recession fears sparked a stock pullback.
We actually don’t think the selloff is consistent with the fundamental picture. You look at the strong job creation, you look at the still-good earnings expectations for this year, 12% [earnings growth] for [the] U.S. equity market [according to data from Bloomberg as of 12/03/2025]. They are consistent with an economy that is holding up okay.
Now, a rapid rotation out of very crowded positions contributed to stock market pressure in recent days. And the very high level of policy uncertainty further led to risk premia repricing, i.e. investors demanding more for holding risk in this environment. But over the six-to-12 month horizon we expect some of those [uncertainties] to dissipate.
2. Tech valuations look more compelling
The 'magnificent seven' forward [price-earnings ratio] in aggregate is [around] the same level as it was during the time of ChatGPT’s rollout.
When you look at the estimates for [the magnificent seven’s] [2025-26] earnings, revenue, operating margins, they haven’t worsened so far this year, notably. If you look at their [capital expenditure] commitments it’s even increased versus what was already a record year last year [according to data from Bloomberg as of 12/03/2025].
3. Selective opportunities in global markets and gold
We recently closed [our] underweight in European equities and we keep our tactical overweight in Chinese equities as some of these unloved and underowned exposures start to play catch-up.
And we also find that in this environment of inflationary pressure and high debt, gold has proven to be a better diversifier compared to long-term [government bonds].
Outro: Here’s our Market Take
The bottom line is we don’t think the market selloff is supported by economic fundamentals. Yet in the very near-term, very elevated policy uncertainty and positioning can keep the pressure up.
Over the horizon of six to 12 months, I would spotlight opportunities in tech that has become more attractive in valuation and also observe that gold can play a better role as diversifier than [long-term] [U.S.] Treasuries in portfolios.
Closing frame: Read details: blackrock.com/weekly-commentary
U.S. recession fears
Markets are doubting U.S. growth and equity strength. Yet economic conditions don’t signal a downturn. Resilient earnings keep us overweight U.S. stocks.
Market backdrop
Global stocks trimmed their losses last week. The S&P 500 was down 1% after briefly entering a technical correction as recession fears gripped markets.
Week ahead
We expect the Federal Reserve to hold rates steady at this week’s policy meeting. Markets have been pricing in deeper rate cuts due to fears about U.S. growth.
U.S. stocks slid as markets doubted the strength of U.S. growth and tech. We see a double disconnect. Economic conditions don’t point to recession, yet prolonged policy uncertainty may hurt growth. And the tech sector still has the strongest expected 2025 growth. We stay overweight U.S. stocks as policy uncertainty should ease over a six- to 12-month horizon. We don’t see long-term bonds as reliable portfolio diversifiers, even if growth suffers, given persistent deficits and inflation.
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Economic strength
U.S. payroll growth, actual and estimated, 2022-2025
Forward looking estimates may not come to pass. Source: BlackRock Investment Institute, Bureau of Labor Statistics, with data from Haver Analytics, March 2025. Note: The chart shows U.S. payroll growth on a three-month average, overall payrolls growth and the estimate of where payrolls growth be when accounting for slowing population growth and usual migration flows.
The S&P 500 has slid 8% from its February high and 4% this year as investors worry U.S. policy changes will bite growth that has been key to U.S. outperformance. Yet fundamental, quantitative economic data doesn’t indicate a downturn is near. Job gains have slowed since 2022 but remain above the long-term level we expect given an aging workforce. See the chart. U.S. corporate earnings expectations and high-frequency indicators of consumer health like weekly credit card spending are also solid, JPMorgan data show. Yet near-term risks to growth loom: Uncertainty could hit consumer spending, investment and trade. The longer policy uncertainty lasts, the more growth could suffer – but even that’s not certain. U.S. policy is spurring government spending elsewhere, reinforcing our view that developed market policy rates and bond yields will stay well above pre-pandemic levels.
Markets have also questioned U.S. equity strength, especially for the tech sector. U.S. recession fears reignited the selloff in tech stocks. The Nasdaq has fallen 11% from its all-time high hit in February – the biggest retreat since the 2022 equity selloff. Yet we stay overweight U.S. stocks on a six- to 12-month tactical horizon. Earnings expectations are healthy, with 12% growth forecast for the S&P 500 this year versus 14% last September, LSEG Datastream data show. Tech corporate margins, earnings and revenues forecasts are holding up and the sector still has the fastest expected growth this year. Free cash flow for the sector is also at 30% of total sales, the highest share since 1990 – a sign of current strength.
Allocating for uncertainty
Recent volatility has been exacerbated by policy uncertainty and investors moving out of crowded positions. For example, last week saw a rapid move away from popular trades, like the tech-heavy momentum equity style factor that had some of its sharpest declines since the pandemic. Both could drive more volatility in the near term. But, over time, deleveraging will have run its course and uncertainty will likely ease as we get more policy implementation details, such as the White House’s full tariff plan due in April. Then, some of the risk premium investors now want for extreme uncertainty could be priced out again.
Long-term U.S. Treasuries have briefly buffered against the stock retreat. But their portfolio diversification role has weakened since the pandemic. We think yields can climb as investors demand more compensation, or term premium, for the risk of holding long-term bonds. Recent inflation data has been noisy, but core CPI is still above what’s consistent with the Federal Reserve’s 2% target. That limits how far the Fed will be able to cut. A likely rising U.S. fiscal deficit – even with revenue from tariffs and potential spending cuts – could also lead to higher term premium. In the past, investors saw long-term bonds as low risk even with heavy government debt loads because they believed low inflation and low interest rates were here to stay. But that fragile equilibrium has been disrupted. Germany’s plans to boost fiscal spending reinforce higher-for-longer rates – and bond yields – globally, we believe. We think gold could be a better diversifier than Treasuries in this environment.
Our bottom line
We think the biggest risk to U.S. growth is prolonged policy uncertainty. U.S. stocks could face more near-term pressure, but we stay overweight on our tactical horizon. We stay underweight long-term Treasuries as we see yields rising.
Market backdrop
Global equity markets trimmed their losses last week after the S&P 500 briefly entered technical correction territory Thursday, falling 10% from the February record peak. The S&P 500 rebounded on Friday to end the week down 1%, but it has slid 4% for the year near six-month lows as concerns about U.S. tariffs and a U.S. recession gripped markets. Ten-year U.S. Treasury yields were largely steady last week near 4.30% even with the equity selloff and lower-than-expected CPI inflation data.
All eyes are on the Federal Reserve policy meeting this week. We, like markets, don’t expect the Fed to cut at this week’s meeting. Yet markets have priced in about two to three 25 basis point rate cuts this year, versus expectations for just one earlier this year. We think this reflects U.S. recession fears even though economic condition don’t point to a downturn. Even if prolonged uncertainty hurts growth, we still see persistent inflation limiting how much the Fed can cut.
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 March 13, 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.
March 19
Fed policy meeting
March 20
Bank of England (BOE) policy meeting
March 21
Japan CPI
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
Nicholas Fawcett
Senior Economist – BlackRock Investment Institute
