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We laid out two economic rules binding on attempts at abrupt U.S. policy changes: financing debt and supply chains. Supply chains can’t be rewired quickly without major disruption. Signs last week of the U.S. softening its trade stance on China show the second starting to bind as negotiations take shape. That’s why we see U.S. policy settling down on our tactical six- to 12-month horizon. We stay positive on developed market stocks yet see more near-term volatility.
U.S. stocks rose 14% from their April lows last week as the U.S. showed signs it may soften its trade stance on China – more evidence economic rules can limit what’s possible in trade negotiations, we think. We track these rules instead of trying to predict policy shifts.
Decoupling from China, bringing production to the U.S., and supply chain diversification are U.S. strategic priorities. Yet global supply chains can’t be rewired quickly without major disruption – an economic rule. China is a key supplier of critical minerals, semiconductors, industrial parts and auto parts, U.S. Census data show. How intertwined are the economies? U.S. imports of computer and electronics are bigger than total U.S. production of these items. See the chart below. Tariffs could up costs, cut access to key inputs and halt production. A cooling U.S. stance would point to growing awareness of the risks tied to a supply shock.
Big questions remain about the damage tariffs could cause, even if the binding effect of economic rules means it will take time to uproot current trade relationships. We see more cause for concern on the supply side, as disruptions could lower productivity and the growth trajectory – like the pandemic shock. Long-term capital spending could also be hurt by uncertainty as happened after the 2016 Brexit vote.
To gauge how long the damage could last, we’re monitoring indicators like capital spending plans, consumer confidence, high-frequency data on port traffic, and early reads on trade flows.
We look for signs of pressure on companies in earnings reports: think mentions of changes in supply chains, the ability to pass costs to consumers and consumer demand. For the “Magnificent Seven” of mostly big tech companies, we’re eyeing any changes in their plans for artificial intelligence (AI) capital spending given more efficient AI models and exposure to the trade war.
In consumer goods, we are tracking guidance on any impacts from weakening consumer sentiment and potentially higher prices. Analysts have cut forecasts for 2025 S&P 500 earnings growth to about 9% from 14% in January, LSEG data show. Prolonged uncertainty could spur further cuts. The consumer discretionary and industrials sectors have suffered sharp declines for 2025 forecasts given their reliance on foreign revenues and global supply chains.
How to invest amid policy uncertainty? We think this calls for more dynamic portfolios.
Economic rules help gauge where trade negotiations could settle, so we see uncertainty easing over six to 12 months. We stay positive on developed market stocks but expect ongoing, near-term volatility. Our expectation for clarity and support from mega forces is why we favor some alterative assets on a strategic horizon of five years and longer.
Policy uncertainty has caused dealmaking to slow as investors struggle to value assets near term. We see dealmaking resuming as clarity returns. Yet private markets are complex and aren’t suitable for all investors. We also like publicly-listed real estate and infrastructure as they’ve diversified portfolios, outperforming U.S. large cap stocks since their February peak, Bloomberg data show. Plus, they stand to benefit from a host of mega forces.
Economic rules can put bounds on the maximal stance in trade negotiations. We stay positive on developed market stocks but expect ongoing, near-term volatility. We also favor publicly listed alternative assets as portfolio diversifiers.
Jean Boivin is Managing Director, Head of the BlackRock Investment Institute at BlackRock Inc.
Wei Li is Global Chief Investment Strategist, Blackrock Investment Institute at BlackRock Inc.
Glenn Purves, Global Head of Macro – BlackRock Investment Institute, and Michel Dilmanian, Portfolio Strategist – BlackRock Investment Institute, contributed to this article.
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© 2025 BlackRock Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. This article first appeared April 28, 2025, on the BlackRock website. Used with permission.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
Image: iStock.com/Torsten Asmus
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