A few days ago, BlackRock’s BlackRock Investment Institute published the three investment lessons that can be extrapolated from 2024.
In addition to these three lessons, they have also published an analysis commenting on the major events that occurred in the financial markets in the year that has just ended.
The three lessons for 2024 according to BlackRock
The first lesson BlackRock Investment Institute takes from 2024 is to rely on narrative changes.
They write And that 2024 reinforced the fact that it was an economic shift, not an economic cycle, which led them to rely on market movements driven by other explanations, and to expect volatility.
The second lesson is to also consider the context in which markets operate, in addition to analyzing the markets themselves.
For example, they point out how US stocks increased more than 20% in 2024, but primarily driven by big tech stocks, while US Treasury yields ended the year above 4.50% as markets factored in interest rate cuts by the Reserve Bank. Federal.
The third lesson is that a lot will depend on what happens these days, given that market expectations have been reduced to just two Fed rate cuts over the course of 2025.
In short, 2024 has helped us shape our outlook for 2025, starting with the ongoing economic transformation (which is not just a simple economic cycle like other cycles), through the opportunities that arise from these misunderstandings, all the way to anticipating the unexpected, because transformation and political changes It can also create surprises and fluctuations.
Interest rates are a major factor
The main key to understanding the analysis conducted by the BlackRock Investment Institute seems to be related to interest rates.
In fact, it suggests that we may have to embrace the idea of ​​raising interest rates for a longer period than expected.
We are entering 2025 with an unusual macroeconomic scenario, also because the recession indicators that were widely tested last year have already failed.
In particular, inflation fell even though growth remained above the historical trend, and the Fed cut interest rates by 100 basis points even though financial conditions were already easing.
Data that does not align with classical interpretations of the economic cycle has led to disproportionate market responses and sudden changes in the narrative.
BlackRock: Transformation and Opportunity
In such a context, they claim that greater market volatility creates “abundant investment opportunities.”
For example, they cite the volatile outlook for the Fed, which has gone from talking about a cycle of easing to a true recalibration.
At the basis of this logic lies precisely the consideration that what is happening is not a classic economic cycle, but a real transformation.
They write:
“We see major forces, or structural changes, reshaping economies and markets.”
Moreover, this shift may modify long-term trends, thus opening the way to a wider range of opportunities.
In light of this, they claim that they are still vulnerable to risks, but are monitoring various signals that could eventually lead them to change their view, in case other, more likely scenarios arise, such as one in which growth may not be able to return to growth. Historical trends.
Speed ​​and volatility
The BlackRock Investment Institute also points out that this shift could happen quickly as well.
From here came the idea that it might be accompanied by certain fluctuations and more surprises than usual.
On the other hand, they expect to see rapid changes in the political sphere as well, to the point of imagining the possibility of disruptions and surprises, within a world already more fragile due to the growing strategic competition between the United States and China.
The main risk, politically, for 2025 is trade protectionism (i.e. tariffs).
conclusion
In conclusion, regarding the US market, the concern remains the possibility of a return of inflation, and thus the impossibility of the Fed going ahead with multiple interest rate cuts.
The report does not specify a possible scenario for 2025, because it repeatedly emphasizes the possibility of surprises or even disruptions.
It focuses instead specifically on changes, and especially on unexpected developments that make the current situation more difficult to interpret in light of classical economic theories.
However, in such a scenario, while there is certainly greater uncertainty on the one hand, there is also the possibility that volatility will remain high in the financial markets, and this actually creates good opportunities (or at least it should be creating them).
It will therefore be necessary to remain vigilant, and not take anything for granted, with a particular focus on the US economy and the Federal Reserve’s monetary policy.
