The market vision of the analysts of BlackRock Investment Institutepublished in its latest market report, continues to favor investing in equities in the United States despite some warnings.
Its strategists maintain: “We reiterate our pro-risk stanceas US inflation cools, interest rates fall and growth slowly slows. We maintain a overweight US stockswe are going beyond technology within our artificial intelligence (AI) theme and remain agile on Japan and China stocks.”
From the report they explained that “This is not a typical economic cycle.“since we are” is a world shaped by supply constraints“. In this regard, they exemplified that “the recent increase in unemployment in the US was not due to layoffs, but rather to the high immigrationwhich expanded the labor supply.” In addition, they point out that “the Job growth remains strong“in the world’s leading economy.
The data behind the recommendations
“The unemployment rate fell again and Markets slightly reduced Fed rate cut expectations. Wage growth cooled, reducing inflation. However, that may not last: Immigration will likely fall to its historical level and will no longer offset the decline in the workforce due to an aging population. That could boost inflation again“, they assured.
They later explained that “the Demographic divergence is one of the five megaforcesor structural changes, which we see adding to inflationary pressures and long-term macroeconomic uncertainty. However, the macroeconomic outlook in the short term there are reasons to continue leaning towards risk“. And they hope that the business profits continue to expand in the next twelve monthsespecially in the technology sector.
They also mentioned sectors linked to the energy, public services such as electricity, real estate and industry. They also note that “we remain agile while observing the US elections, geopolitics and major policy changes worldwide”.
China and Japan Stocks: Time to Get in or Get Out?
As for companies in other regions of the world, they went from “a overweight in Chinese stocks after the policy signal from the September politburo meeting suggested that significant fiscal stimulus could be coming.” Although “that does not change the long-term structural challenges that concern us.” On the other hand, they cut its “overweight in Japanese stocks due to earnings drag from a stronger yen and mixed policy signals from the Bank of Japan.”
Regarding the geopolitical situation, they indicate that “Iran’s attack on Israel and Israel’s promise of retaliation mark a major escalation in the Middle East. Its impact on the market has been limited, but could increase if there is further escalation. For now, we remain pro-risk. Although these events highlight that geopolitical risk is structurally high“.
In this context, they comment that “the Long-term bonds may not be a reliable buffer against the volatility of risk assets in a supply-driven regime, since shocks that fuel inflation could also push up yields. Their bets in this field are “quality and returns”, as the “European short-term credit bondswith less tight spreads; and government bonds“.
They also like “the medium-term bonds in the United Statesas markets price in deep cuts in Federal Reserve rates.” Finally, they state that “in a strategic horizonwe like infrastructure actions and private creditsince they seem to be ready to benefit from megaforces.” Although they specify that “private markets are complex, with high risk and volatilityand not suitable for all investors“.
Source: Ambito
