Global Weekly Commentary - Insights

Evolving our views as uncertainty bites

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Special Market take

Weekly video_20250408

Wei Li

Global Chief Investment Strategist, BlackRock

Opening frame: What’s driving markets? Market take

Camera frame

A few thoughts at this highly critical, highly uncertain, highly volatile juncture in markets.

Title slide: Evolving our views as uncertainty bites

1: Staying invested

The big picture: policy uncertainty, near term pressure on assets, longer term, we're more positive because of robust fundamentals.

That assessment has not changed. So stay invested at times like this – especially at times like this.

2: Policy uncertainty poses risks

Now, if the tariffs were to stay at the current levels, stagflation seems unavoidable. And chances of a recession are also quite a bit higher, especially given the limited ability of the [Federal Reserve] to come to the rescue of the economy.

Now, extreme uncertainty also means that we cannot be certain of the bad outcome either.

3: An unclear policy landing zone

[Tariff] negotiations are ongoing.

For example, now the administration may feel that providing clarity on the landing zone, desired landing zone for tariffs may weaken its hand in negotiations.

In fact, over the weekend, Treasury Secretary Scott Bessent said that the reciprocal tariffs were designed to provide maximum leverage to the president.

But even without the administration providing clarity, there are countervailing forces that can force the administration to temper its maximalist approach and help define the landing zone.

And these countervailing forces include, for example, push back from prominent members of the Republican Party, from allies in the business community, and also legal challenges, for example.

And in that context, responses from trading partners are very important to monitor.

Outro: Here’s our Market take

So what does this mean for investing in the face of this level of uncertainty?

We're shortening our tactical asset allocation investment horizon because we just cannot look that much further ahead.

Historically, when we look at this peak-to-trough drawdown of close to 20% [for the S&P 500 based on its February peak], [stocks] have tended to be good buying opportunities across the board.

It may not be so this time, not across the board. This is not your typical risk-on, risk-off type of environment.

Being selective, being active are very important. Our investors are eyeing security level selection opportunities and sector level selection opportunities – like banks, like technology.

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

Evolving our views

We see more pressure on risk assets in the near term given the major escalation in global trade tensions. We trim our short-term tactical horizon and reduce risk.

Market backdrop

Last week saw a risk asset rout akin to major shocks like the pandemic. US stocks plunged. US 10-year Treasury yields fell, and two-year yields rebounded.

Week ahead

We eye US CPI this week to see how inflation is evolving before new tariffs take effect. Core inflation is running too hot to fall back to the Fed’s 2% target.

The sharp escalation in global trade tensions and extreme trade policy uncertainty has triggered a broad risk asset selloff. It is less clear if uncertainty will cloud the outlook for a little or a lot longer, so we reduce our tactical horizon to three months. That means giving more weight to our early view that risk assets could face more near-term pressure. We reduce equity exposure for now and allocate more to short-term US Treasuries that could benefit as investors seek refuge from volatility.

Market commentary Asset class views

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A stagflation scenario

Fed projections of GDP growth and inflation for end-2025, Sept. 2022-March 2025

Forward looking estimates may not come to pass. Source: BlackRock Investment Institute and Federal Reserve, with data from Haver Analytics, April 2025. Note: The chart shows the Federal Reserve’s projections of GDP growth and core PCE inflation for the calendar year ending in Q4 2025.

The escalating trade conflict sparked the worst one-week selloff in the S&P 500 and US high yield bonds since the 2020 pandemic shock – even as US economic conditions remain solid, as seen in strong US jobs data. We expected risk assets would remain under pressure until uncertainty starts to dissipate – and it’s now less clear over how long or short a period policy uncertainty could cloud the outlook. We now see a bigger growth drag and inflation boost. The Federal Reserve also expects a bigger impact than it did in March. See the chart. Many countries are preparing responses to US tariffs. China has kicked off with 34% tariffs and other measures. Yet the full set of international responses and country-specific negotiations with the US will take time, making it hard to have visibility on when and how this will settle. Major wealth destruction could hurt sentiment and consumer spending.

We still believe US stocks will eventually reclaim global leadership due to mega forces – like the buildout and adoption of artificial intelligence. But for now, we shorten our tactical horizon to three months and reduce risk. A shorter tactical horizon means giving more weight to our early view that risk assets could stay under near-term pressure until uncertainty starts to dissipate. That’s why we reduce equity exposure, including to US and Chinese stocks, and allocate more to short-term US Treasuries that could benefit as investors seek refuge from volatility. If clarity comes quickly, we would up risk-taking again.

Getting selective

While we are more cautious about broad benchmarks, sharp selloffs are creating opportunities for security selection. US policy shifts are spurring fiscal spending globally. In Europe, Germany’s €1 trillion package for defense and infrastructure investment is creating opportunities in the defense sector. We don’t think the growth and earnings outlook yet supports sustained European equity outperformance but a broader macro opportunity could emerge if the European Union finds a way to jointly issue bonds to fund investment across the bloc, as it did in the pandemic.

Overall, we think plans for a new wave of US tariffs and responses from other countries reinforce that we will be in a world where interest rates – and long-term bond yields – stay higher than pre-pandemic. Tariffs and looser fiscal policy in some parts of the world will likely push up on inflation. We lean against market pricing of four to five quarter-point rate cuts by the Fed this year: US core inflation is tracking well above the Fed’s 2% target, even before the impact of new tariffs.

We stay underweight long-term Treasuries given persistent US deficits and sticky core inflation. We expect investors to demand more term premium, or compensation for holding long-term bonds given sticky inflation, higher-for-longer interest rates and a tough fiscal outlook. That could put upward pressure on long-term US Treasury yields. We think gold can serve as a better return diversifier in this environment.

Our bottom line

Trade tensions have triggered a risk asset selloff. We see volatility persisting for some time, so we shorten our tactical horizon to three months and reduce risk-taking, turning neutral on US equities and preferring short-term Treasuries.

Market backdrop

The S&P 500 slid 9% last week and shed 10.5% in just two days – the sharpest such move since the pandemic hit in 2020 – after the news of broad US tariffs on global imports. Europe's Stoxx 600 closed down more than 8%, taking the index into negative territory for the year. US 10-year Treasury yields fell to 4.00% but bounced from a six-month low of 3.86%, partly after Fed Chair Jerome Powell ruled out any near-term rate cuts. Two-year yields rose to 3.65% from a low of 3.47%.

US CPI data for March will be the center of attention for further clues on how inflation is evolving before the new wave of tariffs and other US policy changes take hold. Recent inflation data have been noisy and backward looking, not yet reflecting the impact of tariffs and other policy shifts. Core services inflation, excluding housing, is still running too high to be consistent with core inflation falling back to the Federal Reserve’s 2% target, in our view.

Week ahead

The chart shows that gold is the best performing asset year to date among a selected group of assets, while US equities are 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 April 4, 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 US dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE US Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (US, 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 7

Germany industrial production

April 10

US CPI; China CPI

April 11

University of Michigan sentiment survey; UK GDP

Read our past weekly commentaries here.

Investment themes

01

Holding tight

Markets have come around to the view that central banks will not quickly ease policy in a world shaped by supply constraints. We see them keeping policy tight to lean against inflationary pressures.
02

Pivoting to new opportunities

Higher macro and market volatility has brought more divergent security performance relative to the broader market. Benefiting from this requires granularity and nimbleness.
03

Harnessing mega forces

The new regime is shaped by five structural forces we think are poised to create big shifts in profitability across economies and sectors. The key is identifying catalysts that can supercharge them and whether the shifts are priced by markets today.

	Reasons
Tactical		Reasons
US equities	ReasonsPolicy uncertainty may weigh on growth and stocks in the near term – and the longer elevated uncertainty persists, the more damage it can do. We turn cautious on a shorter, three-month tactical horizon. We think US equities can regain their global leadership, led by mega forces such as AI.
Japanese equities	ReasonsWe are neutral, reflecting our short-term caution on global stocks. Ongoing shareholder-friendly corporate reforms remain a positive. We prefer unhedged exposures given the yen’s potential strength during bouts of market stress.
Selective in fixed income	ReasonsPersistent deficits and sticky inflation in the US make us underweight long-term US Treasuries. We also prefer European credit – both investment grade and high yield – over the US on more attractive spreads.
Strategic		Reasons
Infrastructure equity and private credit	ReasonsWe 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	ReasonsWe prefer DM government bonds over investment grade credit given tight spreads. Within DM government bonds, we favor short- and medium-term maturities in the US, and UK gilts across maturities.
Equity granularity	ReasonsWe 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.
Comments
Note: Views are from a US dollar perspective, April 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.

Showing 1 to 8 of 8 entries

Asset	Tactical view	Commentary
AssetEquities	Tactical view	Commentary
AssetUnited States	Tactical view	CommentaryPolicy uncertainty may weigh on growth and stocks in the near term – and the longer elevated uncertainty persists, the more damage it can do. We turn cautious on a shorter, three-month tactical horizon. We think US equities can regain their global leadership, led by mega forces such as AI.
AssetEurope	Tactical view	CommentaryWe are neutral, preferring the US 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.
AssetUK	Tactical view	CommentaryWe are neutral. Political stability could improve investor sentiment. Yet an increase in the corporate tax burden could hurt profit margins near term.
AssetJapan	Tactical view	CommentaryWe are neutral, in line with our cautious stance on stocks globally. Where we do take exposure, we prefer it unhedged as the yen has tended to strengthen during bouts of market stress.
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 US 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.

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