BlackRock - 2024 Global Investment Outlook

The new regime of greater macro and market volatility has resulted in greater uncertainty and dispersion of returns. We believe a more active approach to managing investment portfolios will carry greater rewards as a result.

Investment themes

01. Managing Macro Risk 

What matters in the new regime: structurally higher interest rates and tougher financial conditions. Markets are still adjusting to this environment – and that’s why context is key in managing macro risk.

02. Steering portfolio outcomes

We think investors need to grab the investment wheel and take a more dynamic approach to their portfolios while staying selective with allocations.

03. Harnessing mega forces

Mega forces are another way to steer portfolios – and think about portfolio building blocks that transcend traditional asset classes, in our view.

A structurally different world

We think higher rates and greater volatility define the new regime. It’s a big change from the decade following the global financial crisis. Investors could rely on static, broad asset class allocations for returns – and gained little advantage from differentiated insights on the macro outlook.

Today, we think the flipside is true. Production constraints abound. Central banks face tougher trade-offs in fighting inflation – and can’t respond to faltering growth like they used to. This leads to a wider set of outcomes, creating greater uncertainty for central banks and investors, in our view.

Not the typical business cycle

There’s a temptation to interpret the new regime by taking a classic business cycle view of the current environment, we believe. This misses the point: the economy is normalizing from the pandemic and being shaped by structural drivers – shrinking workforces, geopolitical fragmentation and the low-carbon transition. The resulting disconnect between the cyclical narrative and structural reality is further stoking volatility, in our view.

Managing macro risk

Seemingly strong U.S. growth actually reflects an economy that’s still climbing out of a deep hole created by the pandemic shock – and tracking a weak growth path. What matters most, in our view, is that the environment implies persistently higher interest rates and tougher financial conditions. Financial markets are still adjusting to this new regime, and that’s why context is key for managing macro risk, our first theme.

Context is everything

Job growth since 2022 has outpaced what’s typically seen in an economic expansion. But zooming out shows the economy is just climbing out of a deep pandemic hole.

U.S. payroll changes vs. typical expansion, 2022-2023 and 2019-2023

Recent employment gains look strong. . .

. . . but still climbing out of a deep pandemic hole 

Source: BlackRock Investment Institute, U.S. Bureau of Labor Statistics, with data from Haver Analytics, December 2023

Notes: The orange lines show the actual level of total nonfarm payroll employment indexed to different start dates. The yellow lines in both charts show hypothetical payroll employment as if the economy had continued to grow at the average rate observed during U.S. post-1945 expansions.

Steering portfolio outcomes

We think macro insights will be rewarded in the new regime. Greater volatility and dispersion of returns create space for investment expertise to shine, as detailed in our second theme – steering portfolio outcomes. This involves being dynamic with investment strategies, while staying selective and seeking out mispricings.

Harnessing mega forces

One way to drive portfolio outcomes is by harnessing mega forces – our third theme. These are five structural forces we see driving returns now and into the future. They have become important portfolio building blocks, in our view.

Putting money to work

On a tactical horizon, our overall macro view would keep us underweight developed market (DM) equities as a standalone because we expect growth to stay stagnant with persistent inflation, prompting central banks to keep policy rates higher for longer. But we find greater alpha opportunities in DM stocks. When incorporating the AI theme and alpha, our overall view is more neutral on U.S. equities. See the chart below. We stay positive on Japan and we keep favoring AI theme in DM stocks.

On a tactical horizon, our overall macro view would keep us underweight developed market (DM) equities as a standalone because we expect growth to stay stagnant with persistent inflation, prompting central banks to keep policy rates higher for longer. But we find greater alpha opportunities in DM stocks. When incorporating the AI theme and alpha, our overall view is more neutral on U.S. equities. See the chart below. We stay positive on Japan and we keep favoring AI theme in DM stocks.

Deep dive of including the mega force overweight on overall U.S. equity view

Source: BlackRock Investment Institute, December 2023 Note: Views are from a U.S. dollar perspective, December 2023. 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.

Strategically, it is more of an income story. Our inflation view keeps us maximum overweight inflation-linked bonds. We still like income within private markets. Within DM government bonds, we stick with a preference for short- and medium-term maturities.

Investors need to take a more active approach to their portfolios. This is not a time to switch on the investing autopilot; it’s a time to take the controls. It’s important to be deliberate in taking portfolio risk, in our view, and we expect to deploy more risk over the next year.

📄 Read 2024 Outlook (PDF)

Important Information:

Capital at Risk

All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Sources: Blackrock Investment Institute, November 2022. Notes: The boxes in this stylized matrix  show how our tactical views on broad assets classes would switch if we were to change our assessment of market risk sentiment or assessment of how much economic damage is priced in. The potential view changes are from a U.S. 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.