Weekly market commentary | BlackRock Investment Institute

Weekly video_20260323
Wei Li
Global Chief Investment Strategist, BlackRock
SCRIPT
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This week, I want to talk about the changes that we’re making to BlackRock tactical investment views.

Title slide: Dialing down risk amid supply shock

1: A durable disruption
First: the backdrop. The energy forward market is now pricing in a durable disruption, reflecting the attack on energy infrastructure in the region that will take time to recover from and a possible prolonged closure of the Strait of Hormuz.

This ushers in a supercharged version of a world shaped by supply. And unless there is tangible evidence of action that could shorten the duration of this broad supply disruption, in our view there is little basis to think that the market expectations for elevated energy prices next year are too high.

These levels represent an inflation, growth and rate shock that is not consistent with overall risk asset pricing at the moment. Meanwhile, the calculus facing central banks, including the Fed, has become more challenging. And the window for the Fed to have cover for their rate cuts is closing.

2: Dialing down risk-taking – for now
Second: so, what are the changes? We dial down risk-taking tactically. In equities, we bring U.S. equities broadly from modest overweight to neutral, noting that it’s actually not that far away from the all-time high hit in January. We also bring Japanese equities down from modest overweight to neutral, given its outsized reliance on energy. It’s still up high single digits on the year, so locking in some gains here and [remembering] we went overweight in 2023 midyear. So across equities we’re now flat, neutral – for now.

In fixed income, especially in [the] Treasuries market, we continue to favor the front end and the belly of the curve over long-dated Treasuries. We also bring up short duration European government bonds from neutral to modest overweight to add a bit of cash buffer, and also [recognizing] that market repricing for ECB hikes has been very notable.

3: Looking ahead
Third: looking ahead. While things could get worse still, we’re not ruling out the possibility of de-escalation as over time we still expect the feedback mechanism from higher oil prices to bind. But with multiple parties involved, each with very different and complex objective functions, the threshold that binds may well be more painful than it looked initially in the early days of the conflict. We stay ready to dynamically adjust our risk exposure.

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