BlackRock may not be as frequently cited for some of its market and policy outlooks and views as some of the large brokerage firms. What makes BlackRock unique is that the investment management giant is the top U.S. manager of exchange traded funds, with close to $1.5 trillion allocated to ETFs alone, and with the dominance from the iShares unit leading the way. That means it has some insight into investor behavior along with just having economists making forecasts.
For 2019, BlackRock has made some changes on its outlooks for global equities, bonds and commodities. For the United States, the firm sees a slowing but still growing economy underlying its positive view. The firm sees a narrow path ahead for risk assets to move higher, but the firm also notes that rising risks could knock these markets off track. The updated outlook for April calls for a careful balance of risk and reward in portfolios.
In equities, the firm prefers quality companies with strong balance sheets in a late-cycle environment, with health care and technology among its favored sectors. Stocks remain BlackRock’s favored asset class in a diversified portfolio, and the preferred regions are the United States and emerging markets. In the latter region, the firm sees these stocks reflecting solid earnings, stimulus in China, improving liquidity and greater China A-shares inclusion in the MSCI EM Index.
The firm is cautious on U.S. Treasury valuations after the recent rally, but it also still sees Treasuries as portfolio diversification tools due to their negative correlation with equities. BlackRock anticipates a gradual steepening of the Treasury yield curve. That steepening is expected to be driven by growth, a Federal Reserve that is willing to tolerate inflation overshoots and a potential shift in the Federal Reserve’s balance sheet toward shorter-term maturities. The firm sees these issues supporting two-year to five-year maturities and inflation-protected securities.
When it comes to oil prices and other commodities, BlackRock expects a reversal of recent oversupply as likely underpinning oil prices. Any relaxation in trade tensions could boost industrial metal prices. The firm is neutral on the U.S. dollar, with a perceived “safe-haven” appeal but with limited gains being based on a high valuation and a narrowing growth gap with the rest of the world.
BlackRock’s views on oil were stated below:
The slowing, but growing, global economy is likely to underpin oil prices after 2018’s bear market, in our view. We expect crude oil prices to be range-bound: U.S. producers find it challenging to operate profitably with a sustained U.S. West Texas Intermediate (WTI) crude price below $50 per barrel. And companies are incentivized to ramp up production when this benchmark climbs above $60. A global oversupply has turned into small inventory draws as a result of production cuts by the Organization of the Petroleum Exporting Countries and its allies, and unplanned outages from Venezuela and elsewhere. We see more balanced supply and demand keeping crude prices stable. Capital discipline among U.S. shale companies should also help.
While BlackRock’s theme says “We remain Risk-On,” the firm does see ongoing issues with U.S./China as a threat, even if a trade-deal is reached. Its April outlook said:
We see potential for a U.S.-China trade deal to address the bilateral trade gap and market access, but caution that U.S.-China tensions, particularly over tech dominance, are likely here to stay.