This site is designed for Professional Investors resident in South Africa. We define "Professional Investors" as those who have the appropriate expertise and knowledge e.g. asset managers, distributors and financial intermediaries. You should not use this site if you do not fall within this category.
Market take
Weekly video_20240923
Catherine Kress
Opening frame: What’s driving markets? Market take
Camera frame
In the race between US Vice President Kamala Harris and former President Donald Trump, we stay focused on policy areas such as tax, energy, trade and regulation.
Control of Congress will be key to determining the next president’s ability to carry out their agenda.
Title slide: Policy focus sharpens in US election
1: Different approaches to fiscal policy
Harris has largely adopted President Joe Biden’s tax plans, including higher corporate taxes. She has set out some differences, such as on the capital gains tax.
Trump plans to fully extend the Tax Cuts and Jobs Act expiring in 2025 and introduce new cuts, including to corporate taxes.
Neither party has prioritized tackling the budget deficit.
2: Energy and trade key focuses
US oil and gas production is at record levels.
A Harris presidency would see a continuation of current energy policies, [including] support for clean energy.
Under Trump, Republicans would look to boost energy production and scale back implementation of the Inflation Reduction Act. Yet we think it’s unlikely the act would be repealed entirely.
On trade policy, Harris is likely to maintain the status quo, with the potential for additional targeted tariffs against China. Trump’s proposed 60% tariffs on China and 10 to 20% broad tariffs would be a major escalation.
Both candidates are likely to pursue additional export controls on national security grounds, especially focused on advanced technology.
3: The outlook for regulation
Big tech may still be a target for bipartisan antitrust measures.
A Harris win could change the healthcare landscape, with expanded Medicare or drug price caps.
Outro: Here’s our Market take
Policy differences between Harris and Trump are becoming sharper.
We see potential impacts in sectors like energy, tech, healthcare and financials.
Closing frame: Read details: blackrock.com/weekly-commentary
The US election outlook is coming into focus with election day just weeks out. We assess the impact of likely policy differences on the economy and sectors.
US stocks hit new highs last week after the Federal Reserve’s hefty rate cut. We think the Fed’s mixed messages after the decision could stoke future volatility.
We watch US core PCE data for August out this week. We think inflation will prove sticky and could surprise the Fed again as it did earlier in the year.
The US presidential election has undergone a reset in recent months, with Vice President Kamala Harris replacing President Joe Biden atop the Democratic ticket. Most national and battleground state polls are showing a close race between Harris and former President Donald Trump. Policy differences are becoming sharper – yet control of Congress will be key for implementation. We stay focused on areas such as tax, energy, trade and regulation for the investment implications.
US presidential candidate polling averages, Jan.-Sept. 2024
Source: BlackRock Investment Institute, with data from RealClearPolitics and LSEG Datastream, September 19, 2024. Notes: The chart shows the average of the US presidential election race results for Harris/Biden vs. Trump from election polls conducted by various US polling agencies.
The US presidential election outlook underwent a reset after Biden’s decision to drop out and endorse Harris as the Democratic nominee for president. Since then and following the debate this month, Harris has taken a slight lead in most national polls, according to RealClearPolitics data. See the chart. The race appears to be close in key battleground states where Harris has closed Trump’s lead and made the race more competitive. Harris’ policy views have mostly been consistent with Biden’s – though she has outlined a number of new proposals including expanding the child tax credit and offering financial support for homebuyers. Yet both candidates could face constraints on enacting their agenda – especially on fiscal policy – if their party doesn’t hold unified control of Congress. This comes as federal regulation may face new limits after recent Supreme Court decisions.
Neither party has prioritized tackling the budget deficit. Harris has largely adopted Biden’s tax plan, such as higher corporate taxes, with some key differences like the capital gains tax on wealthy households. Trump plans to fully extend the provisions of the Tax Cuts and Jobs Act (TCJA) expiring in 2025 and propose new cuts, including to corporate taxes. Trump says he will boost revenues by levying tariffs on a broad range of US imports. Control of Congress will dictate the size and scope of TCJA extensions and any government spending cuts. Deficits are one reason we see inflation staying above pre-pandemic levels.
Energy would be a key policy priority of either administration, including bipartisan agreement on the need for permitting reform to build energy infrastructure. US oil and gas output hit new highs under Biden, supporting the energy sector. A Harris administration would mean a continuation of current energy policies, including support for clean energy. Under a Trump administration, Republicans would look to boost energy production and scale back implementation of the Inflation Reduction Act, like credits for electric vehicles. Yet we think the act is unlikely to be repealed entirely.
We see trade as another area with macro implications. Both candidates are likely to pursue additional export controls on national security grounds, especially in advanced technology. On tariffs, Harris is likely to maintain the status quo, with the potential for more targeted tariffs against China. Trump’s proposed 60% tariffs on China and 10-20% broad tariffs would be a major escalation. Increased protectionism under either administration reinforces geopolitical and economic fragmentation, one of the structural factors we see keeping inflation higher medium term. Reduced legal immigration under either administration – though it is a centerpiece of Trump’s campaign – could also have implications on the labor market.
One area highly dependent on the election outcome is regulation. A Trump win could mean some deregulation, including the rolling back of regulation for banking in particular. Big tech may still be a target for bipartisan antitrust measures. By contrast, a Harris win could reshape the healthcare landscape through expanded Medicare or drug price caps.
Policy differences between Harris and Trump are sharpening. Control of Congress will be key for assessing how their policy agendas could be implemented. We see potential impacts in sectors like energy, tech, healthcare and financials.
US stocks struck new all-time highs last week, with small cap stocks leading the way. Stocks regained their footing after the Fed delivered a larger 50-basis point rate cut. We think the Fed’s mixed messages – speaking of solid growth and many more rate cuts to come – could mean abrupt policy changes and volatility. US 10-year Treasury yields inched up to around 3.75% after reaching 15-month lows. The curve between two- and 10-year yields hit its steepest levels since mid-2022.
We watch US core PCE data, the Federal Reserve’s preferred measure of inflation, for August out this week. The Fed’s mixed messages after its 50-basis point policy rate cut last week show that it risks being surprised again if inflation proves sticky, as it was at the start of the year. The hotter-than-expected CPI for August was a reminder that inflation pressures remain, and wage gains have not eased enough for inflation to stay near the Fed’s 2% target.
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 Sept. 19, 2024. 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.
Global flash PMIs
US consumer confidence
US durable goods
US PCE
Read our past weekly commentaries here.
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.
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.
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.
Our highest conviction views on tactical (6-12 month) and strategic (long-term) horizons, September 2024
Reasons | ||
---|---|---|
Tactical | ||
AI and US equities | We see the AI buildout and adoption creating opportunities across sectors. We get selective, moving toward beneficiaries outside the tech sector. Broad-based earnings growth and a quality tilt make us overweight US stocks overall. | |
Japanese equities | A brighter outlook for Japan’s economy and corporate reforms are driving improved earnings and shareholder returns. Yet the drag on earnings from a stronger yen and some mixed policy signals from the Bank of Japan are risks. | |
Income in fixed income | The income cushion bonds provide has increased across the board in a higher rate environment. We like quality income in short-term credit. We’re neutral long-term US Treasuries. | |
Strategic | ||
Private credit | We think private credit is going to earn lending share as banks retreat – and at attractive returns relative to public credit risk. | |
Fixed income granularity | We prefer intermediate credit, which offers similar yields with less interest rate risk than long-dated credit. We also like short-term government bonds, and UK long-term bonds. | |
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 our outlook. |
Note: Views are from a US dollar perspective, September 2024. 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.
Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, September 2024
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 | We are overweight given our positive view on the AI theme. Valuations for AI beneficiaries are supported as tech companies keep beating high earnings expectations. We think upbeat sentiment can broaden out. Falling inflation is easing pressure on corporate profit margins. | |||||
Europe | We are underweight relative to the US, Japan and the UK – our preferred markets. Valuations are fair. A growth pickup and European Central Bank rate cuts support a modest earnings recovery. Yet political uncertainty could keep investors cautious. | |||||
UK | We are overweight. Political stability and a growth pickup could improve investor sentiment, lifting the UK's low valuation relative to other DM stock markets. | |||||
Japan | We are overweight. A brighter outlook for Japan’s economy and corporate reforms are driving improved earnings and shareholder returns. Yet the drag on earnings from a stronger yen and some mixed policy signals from the Bank of Japan are risks. | |||||
Emerging markets | We are neutral. The growth and earnings outlook is mixed. We see valuations for India and Taiwan looking high. | |||||
China | We are neutral. We see risks from weak consumer spending, even with measured policy support. An aging population and geopolitical risks are structural challenges. | |||||
Fixed income | ||||||
Short US Treasuries | We are underweight. We don’t think the Fed will cut rates as sharply as markets expect. An aging workforce, persistent budget deficits and the impact of structural shifts like geopolitical fragmentation should keep inflation and policy rates higher over the medium term. | |||||
Long US Treasuries | We are neutral. Markets have priced back in sharp Fed rate cuts and term premium is close to zero. We think yields will keep swinging in both directions on new economic data. | |||||
Global inflation-linked bonds | We are neutral. We see higher medium-term inflation, but cooling inflation and growth may matter more near term. | |||||
Euro area government bonds | We are neutral. Market pricing reflects policy rates in line with our expectations and 10-year yields are off their highs. Political uncertainty remains a risk to fiscal sustainability. | |||||
UK Gilts | We are neutral. Gilt yields have tightened to US Treasuries and market pricing of future yields is in line with our view. | |||||
Japan government bonds | We are underweight. Stock returns look more attractive to us. We see some of the least attractive returns in JGBs. | |||||
China government bonds | We are neutral. Bonds are supported by looser policy. Yet we find yields more attractive in short-term DM paper. | |||||
US agency MBS | 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 | We are overweight. Short-term bonds better compensate for interest rate risk. We prefer Europe over the US | |||||
Long-term IG credit | We are underweight. Spreads are tight, so we prefer taking risk in equities from a whole portfolio perspective. We prefer Europe over the US | |||||
Global high yield | We are neutral. Spreads are tight, but the total income makes it more attractive than IG. We prefer Europe. | |||||
Asia credit | We are neutral. We don’t find valuations compelling enough to turn more positive. | |||||
Emerging market - hard currency | 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 | We are neutral. Yields have fallen closer to US Treasury yields, and EM central banks look to be turning more cautious after cutting policy rates sharply. |
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. The statements on alpha do not consider fees. 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.
This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) and Qualified Investors only and should not be relied upon by any other persons.
Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Capital at risk. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.
© 2024 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK and SO WHAT DO I DO WITH MY MONEY logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.