We are currently experiencing modest growth amidst higher inflation, increased interest rates, and greater market volatility. BlackRock advises investors to focus on adapting to this new environment rather than relying on traditional cyclical strategies.
BlackRock emphasizes a crucial observation: We are witnessing a shift that is fundamentally structural. Unlike cyclical changes, which are temporary fluctuations tied to the business cycle's natural phases (growth, peak, recession, and recovery), structural changes are deep-rooted transformations. These alterations fundamentally reshape the economy's core structure and operation framework, suggesting a permanent evolution rather than a mere temporary adjustment.
BlackRock's strategy for portfolio management
The present climate of heightened volatility and market variability demands a more active portfolio management approach. Although structurally higher policy rates are expected to yield higher returns across all assets eventually, not all asset valuations have yet adjusted. BlackRock highlights the increased significance of alpha, or above-benchmark returns, advocating for a dynamic portfolio strategy, especially when cash offers attractive returns. Since 2020, insightful and timely actions have surpassed the returns of buy-and-hold strategies.
Harnessing mega forces
BlackRock introduces the concept of mega forces in its 2024 global outlook, identifying them as significant, structural changes shaping the investment landscape both now and in the foreseeable future. These forces are the main drivers behind an era characterized by increased macroeconomic and market volatility, altering long-term growth and inflation projections. They are expected to prompt considerable shifts in profitability across economies and sectors, presenting both substantial opportunities and risks for investors. The far-reaching impacts of these mega forces are gradually being recognized in the markets, potentially offering investment prospects that are not directly tied to macroeconomic cycles.
Mega forces outlined by BlackRock
Low-carbon transition
The escalating effects of climate change are fueling a demand for solutions geared toward enhancing climate resilience. This focus on preparing for, adapting to, and recovering from climate-related hazards has become a notable investment theme within the broader strategy of transitioning to low-carbon economies.
Digital disruption
Breakthroughs in computing hardware and deep learning have marked a pivotal moment for artificial intelligence in late 2022, with expectations of exponential progress due to accelerating innovation. The resilience of tech sector earnings is anticipated to continue, significantly contributing to corporate profit growth in 2024.
Future of finance
The financial landscape is rapidly evolving, transforming how individuals and businesses manage cash, engage in transactions, and seek returns. The increasing capital pressures on traditional banks are paving the way for private credit and non-banking institutions to address the growing demand for lending services. Demographic divergence
The global divide between aging and youthful economies is becoming more pronounced. High-income countries face a declining working-age population, which could limit economic production and growth, while low-income economies expect a surge in their labor force. This demographic shift poses challenges for government spending and debt management.
Geopolitical fragmentation
Moving away from the post-Cold War era of globalization, nations are now prioritizing national security and resilience. This shift towards geopolitical fragmentation and economic competition is anticipated to boost investment in strategic sectors, including technology, energy, and defense.
For the full global outlook, visit BlackRock's 2024 Outlook.