Our outlook has become modestly more positive since the end of Q1, thanks to the strength of the U.S. labor market, robust capital expenditures, and the resilience of the U.S. consumer, The macro backdrop supports a potential pivot toward riskier, high yielding assets but inflation remains sticky and geopolitical risks have been higher than normal.
Against this backdrop, we believe investors are best served by staying nimble across fixed income, equities, and international markets.
Hi, I’m Kristy Akullian, Head of iShares Investment Strategy for the Americas at BlackRock. Here are some of the key takeaways from our 2024 Midyear Investment Directions.
The overall trend towards lower inflation seems clear, but the Federal Reserve has said it needs more data before it would be confident enough to begin cutting rates. We believe continued improvements in inflation and gently slowing growth will allow the Fed to cut rates twice this year, with the first cut potentially arriving as soon as September.
Our expected path of monetary policy and U.S. growth could have important implications for asset allocation.
In fixed income, our outlook for normalizing interest rates implies a potentially favorable environment to extend duration out of cash ...and into the 3-to-7 year portion of the yield curve. We also see opportunities in potentially higher-yielding, short duration assets such as collateralized loan obligations or CLOs. Finally, we see a more important role for active management to be more selective within the high yield and corporate bond spaces.
In U.S. equities, we lean into high quality exposures to seek to avoid companies that might come under stress in the Fed’s “higher-for-longer” rate environment. AI has also rapidly altered the investment landscape, leading to, in some instances, triple digit returns in associated companies. We see more potential AI-driven opportunities outside of technology, like the utilities sector. But identifying the most promising opportunities requires vigilance, also underscoring the potential significance of actively managed strategies in portfolios.
Looking overseas, dispersion between international markets remains higher than pre-covid levels. This shift underscores the need to be selective in international allocations, both on a short-term and long-term basis. It’s a big year of elections around the world, potentially introducing more volatility. We think Investors should look beyond short-term volatility and focus on longer-term strategic trends such as demographic transformations and supply chain rewiring.
These are just a few of the ways we are approaching the rest of the year. Check our full Midyear 2024 Investment Directions and stay tuned for a deep dive into each asset class coming soon.
Until then, I’m Kristy Akullian, thanks for watching!
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