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Getting active tactically

Published on 07-15-2025

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Finding anchors in mega-forces as macro anchors weaken

 

Big policy shifts seem to have upended the world this year – but our 2025 Midyear Outlook puts them in perspective. We think immutable economic laws on global trade and U.S. debt limit how quickly the world can change. And while we see long-term macro anchors weakening, we think mega forces like artificial intelligence provide a new anchor. These two core features of this environment keep us risk on and overweight U.S. equities. Watch for more from our Outlook in coming weeks.

As unusual as this year has seemed, we think it is a more acute manifestation of the profound transformation underway for a few years now.

Long-term macro anchors markets have relied on for decades, like stable inflation and fiscal discipline, have weakened. But that does not mean investors should trim risk taking. Mega forces offer a new anchor for returns. And we see immutable economic laws limiting policy shifts and narrowing near-term outcomes: Supply chains can’t be rewired overnight, and U.S. debt sustainability relies on large foreign funding. So, we’re investing in the here and now – and putting more weight on our short-term views.

We think today’s economic setup still favors U.S. outperformance. European stocks have bested U.S. peers many times since 2000, including early this year, but it’s always faded (see the chart below). We think Europe needs to advance its structural reforms to change that.

The recognition that immutable economic laws prevent fast deviation from the status quo allowed us to quickly dial risk back up after the April 2 tariff announcements. And we now see even more cause to stay risk on and overweight U.S. equities. The U.S. is set to enact tax and regulatory reforms that could boost investor sentiment. We see scope for overall corporate earnings to stay solid even if U.S. growth is dented by tariff-induced disruptions and corporate caution.

In fixed income, by contrast, we prefer euro area government bonds and credit over the U.S. Yields are more attractive in Europe than in the U.S. Yes, long-term U.S. Treasury yields may temporarily fall as markets price in rate cuts amid shifting narratives, but we think sticky inflation will keep the Federal Reserve from cutting far. Plus, high fiscal deficits may prompt investors to seek more term premium, or compensation for the risk of holding long-term U.S. debt. We also prefer local currency emerging market (EM) bonds as the U.S. dollar could weaken more and the EM growth outlook is brighter.

In this volatile environment, we think it is important to carefully manage macro risk: Set-and-forget portfolios no longer serve investors well. We find other ways of taking risk with no macro anchor. They include relative value – or positioning for prices of different securities to converge or diverge – liquidity, regulation, and positioning risk. Another way we inform our risk-taking is by finding anchors in mega forces. We believe they will be durable drivers of returns in both the near and long term.

Across all asset classes, greater dispersion in market and security returns means more opportunity to capture alpha, or above-benchmark returns. Take mega forces as an example. They don’t provide a clear handle on the growth and inflation outlook, unlike macro anchors, and don’t map into broad return drivers. Instead, we need to track their evolution across and within asset classes, get granular with themes, and constantly adapt to what’s priced in.

Getting active applies across both public and private markets – and we see greater blending of the two within portfolios. Look out for more on just how exceptional this environment is for alpha in coming weeks.

Bottom line

As long-term macro anchors weaken, we find new ones in mega forces and lean more on our short-term views as immutable economic laws limit the pace of change. We stay overweight U.S. stocks and get active across asset classes.

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 Vivek Paul Global Head of Portfolio Research – BlackRock Investment Institute, contributed to this article.

Disclaimer

Content copyright © 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 July 2, 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/Olivier Le Moal

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