June 29, 2022

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Get ready for a ‘new world order’ that drives stocks and bonds: BlackRock

2 min read

It’s an end of an era.

That’s BlackRocks Inc.’s
Tony DeSpirito, chief investment officer in the U.S. fundamental equities division of the world’s largest asset manager, telling investors to prepare for the end of a backdrop of low-rates and slow-growth that’s defined markets since the 2008 global financial crisis.

Despite a precarious start to 2022, “one thing we feel relatively certain about is that we are exiting the investing regime that had reigned since the Global Financial Crisis (GFC) of 2008,” DeSpirito wrote in a second-quarter outlook Monday.

The equities group sees not only a “new world order” taking shape that will “undoubtedly entail higher inflation and rates than we knew from 2008 to 2020,” but a trickier environment for investors, particularly as Russia’s war in Ukraine threatens to keep energy
and commodity costs in focus.

“Perversely, the situation could favor U.S. stocks, as they are more insulated than their European counterparts from energy price spikes and the direct impacts of the war and its economic ramifications,” DeSpirito wrote, adding that a rebalance toward value may be warranted.

“It is also worth noting that bonds, which typically gain an edge in times of risk aversion, are providing less portfolio ballast today as correlations to equities have converged.”

To help form its thinking, the team studied previous rate-hiking cycles by the U.S. central bank, starting in 1983 to 2015, and found that value stocks outperformed their large-capitalization counterparts but also a key bond-market benchmark (see chart).

Stocks, bonds and especially value tend to do well 3 years after a rate-hiking cycle

BlackRock Fundamental Equities, Bloomberg

2022-04-04 18:07:00

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