Advisor Outlook

I’m Lauren Barlow [with BlackRock’s Market and Portfolio Insights for U.S. Wealth team], here with your Advisor Outlook update for August.

As we enter August, we are starting to hear near-term recession fears ease: economic indicators have been surprising to the upside and inflation has been coming down.  Even if we don’t see a recession, modest pullbacks are likely met with modest recoveries, so we do remain cautiously optimistic moving forward.

Now these are all positive signs for advisor portfolios. Here is what it all means with our three key insights for the month.

First, the Fed 'pause' that we’ve all been waiting for may soon begin in earnest. We saw the latest CPI reading fall to 3%, and core PCE – the Fed’s favored inflation measure – is down to 4.1%. If inflation continues its path down, the Fed may not need to raise rates again. How long it will keep rates high depends on how quickly inflation falls, but our base case is that rates stay higher at least through the end of the year, if not the middle of next year, creating a wide range of investment opportunities. We like the yields on ultra-short bonds, and are also locking in longer-term yields with bond ladders, preparing for the eventual fall in rates with core bond allocations, and seeking cash-plus-alpha returns where we can find them in diversifying alternatives.

From a broader macro perspective, economic indicators have been surprising to the upside, and a broadening equity rally may be a positive sign for stocks. We saw a 2.4% GDP growth in Q2, which both beat economist forecasts and is well out of recession range. On top of that, we have seen the U.S. equity market rally broaden out. Where many were concerned last month about seven Mega cap names driving most of the S&P 500’s year-to-date returns, we have seen the rest of the market start to catch up. We still like quality stocks for their ability to weather a slowing economy and high interest rates, but are seeing opportunities to complement that overweight with more attractively valued, smaller cap securities that may still have room to run.

Last, we remain believers in the value of alternatives in amplifying returns and diversifying risks. In fact, we see opportunities to improve yield with private credit and like diversifying alternatives that seek to deliver cash-plus returns with low correlations to stocks and bonds.

To summarize, here are our are 3 key insights for August in short –

1) The Fed 'pause' may soon begin in earnest

2) A broadening equity rally may be positive for stocks

And lastly 3) Seek to amplify returns and diversify risk with alternatives

With that being said - we are here to help and would love to work with you on bringing our best market and portfolio insights to bear on your own models and practice.

Check out the full Advisor Outlook deck for more of our best thinking, and if you have any questions or want to talk about what any of these ideas mean for you, please reach out to your local BLK market team or call (877) ASK-1BLK. Thank you!