MARKET INSIGHTS

Weekly market commentary

Mar 03, 2025

Leaning on the tactical in our views

­Market take

Weekly video_20250303

Devan Nathwani

Portfolio Strategist, BlackRock Investment Institute

Opening frame: What’s driving markets? Market take

Camera frame

We see mega forces driving an economic transformation that could keep shifting the long-term trend. That long-term uncertainty is being compounded by near-term policy uncertainty this year.

Title slide: Leaning on the tactical in our views

1: How we navigate uncertainty

We allocate a larger share of portfolio risk to our views on a six- to 12-month horizon, allowing us to be nimble in adjusting our views.
Our scenarios for positive and negative outcomes for the economy and markets also help us adjust our views.

2: Conviction in the short term

The AI theme and strong earnings give us more tactical conviction in U.S. stocks, even with valuations historically high by most gauges.

Yet it’s harder to know what a reasonable valuation is during a time of transformation. Take further concentration in the tech sector as investors aim to tap into the AI theme. Strong earnings growth could also back valuations, as we’ve seen recently with Nvidia.

3: Private markets for the long run

Over the medium term, we think some of the most attractive opportunities are in private markets as they intertwine with mega forces. Yet private markets aren’t immune from heightened uncertainty. They are also complex, with high risk and volatility, and not suitable for all investors.

Outro: Here’s our Market take

The AI theme and strong earnings keep us overweight U.S. stocks tactically.

Over the long-term we see attractive opportunities in private markets from the mega forces driving the transformation ahead.

Today’s portfolio still holds plenty of U.S. equities but also makes room for private markets.

Closing frame: Read details: blackrock.com/weekly-commentary

Navigating uncertainty

This unusually uncertain policy environment requires different views across horizons, in our view. We like U.S. stocks now and private markets medium term.

Market backdrop

U.S. stocks fell about 1% last week, with the S&P 500 trimming its gains for the year to 1.5%. Ten-year U.S Treasury yields fell sharply to two-month lows.

Week ahead

We expect the European Central Bank to cut interest rates this week, then proceed with caution. We track ongoing wage pressures in the U.S. jobs data.

A fundamental shift in macro and foreign policy has driven recent market volatility. That comes on top of mega forces – structural shifts like artificial intelligence (AI) – that are shaping the outlook and can lead to varied outcomes over the medium term. We think that calls for emphasizing tactical views. We still see AI driving corporate earnings strength, but this scenario is becoming more uncertain. We stand ready to pivot – and see private markets playing a key role across horizons.

Download full commentary (PDF)

Market commentary Asset class views
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Navigating historic uncertainty
U.S. trade policy uncertainty index, 1960-2025

The chart shows that trade policy uncertainty has soared to its highest in at least 65 years, reflecting U.S. tariff headlines.

Source: BlackRock Investment Institute, with data from Matteo Iacoviello/Haver Analytics, February 2025. Note: The Trade Policy Uncertainty (TPU) Index is based on automated text searches of the electronic archives of seven newspapers. The measure is calculated by counting the monthly frequency of articles discussing trade policy uncertainty (as a share of the total number of news articles) for each newspaper. The index is normalized to a value of 100 for a 1% article share.

We see a mega forces-driven economic transformation that could keep shifting the long-term trend. That limits conviction in long-term valuation signals because it’s difficult to determine what’s a fair valuation during an economic transformation, in our view. That long-term uncertainty is being compounded this year by near-term policy uncertainty: Trade policy uncertainty has soared to its highest in at least 65 years, reflecting U.S. tariff headlines. See the chart. How to respond? We allocate a greater share of portfolio risk to our six- to 12-month tactical views, allowing us to be nimble. Our scenarios for positive and negative economic and market outcomes help us shift our views as some policy uncertainty abates. Our baseline scenario: U.S. corporate profits stay strong and broaden alongside AI beneficiaries. Yet we’re ready to pivot – especially as we get more policy implementation details.

Over the medium term, we spread out our conviction across asset classes as economies undergo a transformation driven by mega forces such as AI. We think some of the most attractive opportunities are in private markets. While private market assets are not immune from the long-term uncertainty, we see many benefitting from the mega forces. Infrastructure equity, such as stakes in data centers, sits at the intersection of several mega forces, including today’s AI-driven investment boom. Private equity funds have struggled more than in the past due to higher interest rates. Yet as valuations have fallen, current or future funds could benefit. Private markets are complex, with high risk and volatility, and not suitable for all investors.

U.S. equity conviction

The AI theme and strong earnings give us more tactical conviction in U.S. stocks. That’s the case even as the run-up of U.S. stocks to record highs has shined a spotlight on historically rich valuations by most gauges. Valuations, especially for tech, look as lofty as in the dot-com bubble or the 1920s peak based on some metrics, like the cyclically adjusted ratio of share price to 10-year average of corporate earnings, we find. Yet it’s harder to know what a reasonable valuation is during a time of transformation. Take concentration in the tech sector, where valuations tend to be higher, as investors chase the AI theme. Strongs earnings growth could also back valuations. We’re seeing that firsthand: Nvidia’s revenue has surged roughly sixfold in just two years, and still its valuation dipped as earnings growth outpaced the share surge, LSEG Datastream data show.

While U.S. corporate strength is our base case for now, we have seen the outlook evolve suddenly in recent years. We stand ready to pivot given uncertainty because of the economic transformation and U.S. policy now. We created our scenarios last year to help us navigate this volatile environment. While some of the incoming information on U.S. policy has been noisy, we expect that to become a concrete signal to adapt to. How to build a portfolio that factors in unusually uncertain long-term signals and a volatile near-term environment? U.S. equities would still be the largest portfolio allocation, in our view. Yet the overall allocation to U.S. stocks would be less than benchmark public market exposures to make room for private markets.

Our bottom line

The AI theme and strong earnings keep us overweight U.S. stocks tactically, even with high policy uncertainty. Over the long term, we see attractive opportunities in private markets that will be key to financing the transformation.

Market backdrop

U.S. stocks lost steam last week, led by the tech sector. The S&P 500 slid about 1% to trim the year’s gains to 1.5%, partly on concerns about U.S. tariffs. Nvidia’s shares fell sharply after its earnings results. AI-related shares have come under pressure from lingering investor worries about whether AI investment will pay off. Yet we think this is still the early phase of AI adoption and see room for the buildout winners to do well. Ten-year U.S. Treasury yields fell sharply to two-month lows near 4.20%.

We expect the European Central Bank (ECB) to cut interest rates this week. Weak economic growth and moderating inflation allow the ECB to cut rates closer to a neutral level that neither restricts or stimulates activity. Risks remain that could push inflation in either direction, so we see the ECB proceeding with caution after the March meeting. In the U.S., we watch labor data for February for signs of ongoing high wage pressures.

Week ahead

The chart shows that European equities are the best performing asset year to date among a selected group of assets, while the U.S. dollar index is the worst.

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 Feb. 27, 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 3

Euro area flash inflation

March 5

China Caixin services PMI

March 6

European Central Bank policy decision; U.S. trade data

March 7

U.S. payrolls report

Read our past weekly market commentaries here.

Big calls

Our highest conviction views on tactical (6-12 month) and strategic (long-term) horizons, March 2025

  Reasons
Tactical  
U.S. equities We see the AI buildout and adoption creating opportunities across sectors. We tap into beneficiaries outside the tech sector. Robust economic growth, broad earnings growth and a quality tilt underpin our conviction and overweight in U.S. stocks versus other regions. We see valuations for big tech backed by strong earnings, and less lofty valuations for other sectors.
Japanese equities A brighter outlook for Japan’s economy and corporate reforms are driving improved earnings and shareholder returns. Yet the potential drag on earnings from a stronger yen is a risk.
Selective in fixed income Persistent deficits and sticky inflation in the U.S. make us more positive on fixed income elsewhere, notably Europe. We are underweight long-term U.S. Treasuries and like euro area government bonds instead. We also prefer European credit – both investment grade and high yield – over the U.S. on more attractive spreads.
Strategic  
Infrastructure equity and private credit We see opportunities in infrastructure equity due to attractive relative valuations and mega forces. We think private credit will earn lending share as banks retreat – and at attractive returns.
Fixed income granularity We prefer DM government bonds over investment grade credit given tight spreads. Within DM government bonds, we favor short- and medium-term maturities in the U.S., and UK gilts across maturities.
Equity granularity We favor emerging over developed markets yet get selective in both. EMs at the cross current of mega forces – like India and Saudi Arabia – offer opportunities. In DM, we like Japan as the return of inflation and corporate reforms brighten the outlook.

Note: Views are from a U.S. dollar perspective, March 2025. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any particular funds, strategy or security.

Tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2025

Legend Granular

Our approach is to first determine asset allocations based on our macro outlook – and what’s in the price. The table below reflects this. It leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns. The new regime is not conducive to static exposures to broad asset classes, in our view, but it is creating more space for alpha. For example, the alpha opportunity in highly efficient DM equities markets historically has been low. That’s no longer the case, we think, thanks to greater volatility, macro uncertainty and dispersion of returns. The new regime puts a premium on insights and skill, in our view.

Asset   Tactical view Commentary
Equities      
United States   United States: tactical Overweight +2 We are overweight as the AI theme and earnings growth broaden. Valuations for AI beneficiaries are supported by tech companies delivering on earnings. Resilient growth and Fed rate cuts support sentiment. Risks include any long-term yield surges or escalating trade protectionism.
Europe   Europe: tactical Neutral 0 We are neutral, preferring the U.S. and Japan. We see room for more European Central Bank rate cuts, supporting an earnings recovery. Rising defense spending, as well as potential fiscal loosening and de-escalation in the Ukraine war are other positives.
U.K.   U.K.: tactical Neutral We are neutral. Political stability could improve investor sentiment. Yet an increase in the corporate tax burden could hurt profit margins near term.
Japan   Japan: tactical Overweight +1 We are overweight. A brighter outlook for Japan’s economy and corporate reforms are driving improved earnings and shareholder returns. Yet a stronger yen dragging on earnings is a risk.
Emerging markets   Emerging markets: tactical Neutral We are neutral. The growth and earnings outlook is mixed. We see valuations for India and Taiwan looking high.
China   China: Overweight+1 We are modestly overweight. We think AI and tech excitement could keep driving returns, potentially reducing the odds of much-anticipated government stimulus. We stand ready to pivot. We remain cautious given structural challenges to China’s growth and tariff risks.
Fixed income      
Short U.S. Treasuries   Short U.S. Treasuries: tactical Neautral We are neutral. Markets are pricing in fewer Federal Reserve rate cuts and their policy rate expectations are now roughly in line with our views.
Long U.S. Treasuries   Long U.S. Treasuries: tactical Underweight-2 We are underweight. Persistent budget deficits and geopolitical fragmentation could drive term premium up over the near term. We prefer intermediate maturities less vulnerable to investors demanding more term premium.
Global inflation-linked bonds   Global inflation -linked bonds : Neutral We are neutral. We see higher medium-term inflation, but cooling inflation and growth may matter more near term.
Euro area government bonds   Euro area govt bonds: OW +1 from neutral We are overweight. Trade uncertainty may hurt euro area growth more than it boosts inflation, potentially allowing the European Central Bank to cut rates more. Political uncertainty remains a risk to fiscal sustainability.
UK Gilts   UK gilts: neutral from OW +1 We are neutral. Gilt yields are off their highs, but the risk of higher U.S. yields having a knock-on impact and reducing the UK’s fiscal space has risen. We are monitoring the UK fiscal situation.
Japan government bonds   Japan government bonds: tactical Underweight -2 We are underweight. Stock returns look more attractive to us. We see some of the least attractive returns in JGBs.
China government bonds   China government bonds: tactical Neutral We are neutral. Bonds are supported by looser policy. Yet we find yields more attractive in short-term DM paper.
U.S. agency MBS   U.S. agency MBS: tactical neutral 01 We are neutral. We see agency MBS as a high-quality exposure in a diversified bond allocation and prefer it to IG.
Short-term IG credit   Short-term IG credit: tactical Overweight +1 We are overweight. Short-term bonds better compensate for interest rate risk.
Long-term IG credit   Long-term IG credit: tactical Underweight -1 We are underweight. Spreads are tight, so we prefer taking risk in equities from a whole portfolio perspective. We prefer Europe over the U.S.
Global high yield   Global high yield: tactical Neutral We are neutral. Spreads are tight, but the total income makes it more attractive than IG. We prefer Europe.
Asia credit   Asia credit: tactical Neutral We are neutral. We don’t find valuations compelling enough to turn more positive.
Emerging market - hard currency   Emerging market-hard currency: tactical Neutral 00 We are neutral. The asset class has performed well due to its quality, attractive yields and EM central bank rate cuts. We think those rate cuts may soon be paused.
Emerging market - local currency   Emerging local currency: UW -1 from neutral We are underweight. We see emerging market currencies as especially sensitive to trade uncertainty and global risk sentiment.

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.

Euro-denominated tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2025

Legend Granular

Asset Tactical view Commentary
Equities    
 Europe ex UK Europe ex-UK: tactical neutral We are neutral, preferring the U.S. and Japan. We see room for more European Central Bank rate cuts, supporting an earnings recovery. Rising defense spending, as well as potential fiscal loosening and de-escalation in the Ukraine war are other positives./td>
Germany Germany: tactical Underweight-1 We are underweight. Valuations and earnings momentum offer modest support compared to peers, especially as ECB rate cuts ease financing conditions. Prolonged uncertainty over the next government, potential tariffs, and fading optimism about China’s stimulus could dampen sentiment.
France France: tactical Underweight -1 We are underweight. The outcome of France’s parliamentary election and ongoing political uncertainty could weigh on business conditions for French companies. Yet, only a small share of the revenues and operations of major French firms is tied to domestic activity.
Italy Italy: tactical Underweight -1 We are underweight. Valuations are supportive relative to peers, but past growth and earnings outperformance largely stemmed from significant fiscal stimulus in 2022-2023, which is unlikely to be sustained in the coming years.
Spain Spain: tactical neutral We are neutral. Valuations and earnings momentum are supportive compared to other euro area stocks. The utilities sector stands to gain from an improving economic backdrop and advancements in AI.
Netherlands Netherlands: tactical Underweight -1 We are underweight. The Dutch stock market’s tilt to technology and semiconductors—key beneficiaries of rising AI demand—is offset by less favorable valuations and a weaker earnings outlook compared to European peers.
Switzerland Switzerland: tactical Underweight -1 We are underweight, consistent with our broader European view. Earnings have improved, but valuations remain elevated compared to other European markets. The index’s defensive tilt may offer less support if global risk appetite stays strong.
UK UK: tactical neutral We are neutral. Political stability could improve investor sentiment. Yet an increase in the corporate tax burden could hurt profit margins near term.
Fixed income    
Euro area government bonds Euro area government bonds: overweight+1 We are overweight. Trade uncertainty may hurt euro area growth more than it boosts inflation, potentially allowing the European Central Bank to cut rates more. Political uncertainty remains a risk to fiscal sustainability.
German bunds German bunds: tactical neutral We are neutral. Market pricing aligns with our policy rate expectations, and 10-year yields have eased from their highs, partly due to growth concerns. We are watching the fiscal flexibility debate ahead of upcoming elections.
French OATs French OATs: tactical neutral We are neutral. France faces challenges from elevated political uncertainty, persistent budget deficits, and a slower pace of structural reforms. The EU has already warned the country for breaching fiscal rules, and its sovereign credit rating was downgraded earlier this year.
Italian BTPs Italian BTPs: tactical Neutral We are neutral. The spread over German bunds looks tight given its budget deficits and debt profile, prompting a warning from the EU. Other domestic factors remain supportive, with growth holding up relative to the rest of the euro area and Italian households showing solid demand to hold BTPs at higher yields.
UK gilts UK gilts: tactical neutral We are neutral. Gilt yields are off their highs, but the risk of higher U.S. yields having a knock-on impact and reducing the UK’s fiscal space has risen. We are monitoring the UK fiscal situation.
Swiss government bonds Swiss government bonds: tactical neutral We are neutral. The Swiss National Bank has cut policy rates this year as inflationary pressures eased but is unlikely to reduce rates significantly further.
European inflation-linked bonds Euro area inflation-lined bonds: tactical neutral We are neutral. We see higher medium-term inflation, but cooling inflation and sluggish growth may matter more near term.
European investment grade credit European investment grade credit: tactical Neutral We are neutral on European investment grade credit, favoring short- to medium-term paper for quality income. We prefer European investment grade over the US, as spreads are relatively wider.
European high yield European high yield: tactical Overweight +1 We are overweight. The income potential is attractive, and we prefer European high yield for its more appealing valuations, higher quality, and shorter duration compared to the US. In our view, spreads adequately compensate for the risk of a potential rise in defaults.

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 euro perspective, March 2025. 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.

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Meet the authors
Jean Boivin
Jean Boivin
Head – BlackRock Investment Institute
Wei Li
Wei Li
Global Chief Investment Strategist – BlackRock Investment Institute
Vivek Paul
Vivek Paul
Global Head of Portfolio Research – BlackRock Investment Institute
Devan Nathwani
Devan Nathwani
Portfolio Strategist – BlackRock Investment Institute

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