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Several market anomalies this year underscore our conviction that this is not just another business cycle, but an economic transformation with an unknown end.
Yields on 30-year U.S. Treasuries have risen even as two-year Treasury yields fall – an unusual situation reflecting investors’ wish for more compensation to hold long-term bonds (see the chart below).
And though trade uncertainty hit an all-time high and markets were hectic in April, it did not translate into sustained volatility; in fact, implied bond and equity volatility fell to a multi-year low, per Bank of America data.
Similarly, markets have mostly shrugged off tariffs: Though higher than at the start of the year, they are now much lower than markets first feared. These twists and turns show how important it is to look through the noise and use a framework to make sense of the big picture. We take three lessons into the rest of the year.
First: Amid all the noise, it has paid off to rely on immutable economic laws that prevent the world changing fast. That allowed us to capture tactical opportunities created by sentiment swings as markets tried to infer what near-term data mean for the path of the economy.
An example: Equities fell and yields spiked after April 2, but we believed immutable laws – like U.S. debt sustainability relies on steady foreign funding – would prevent the proposed maximal stance on tariffs, so we quickly reverted to being risk-on before sentiment improved.
Another example: European stocks outperformed the U.S. for much of the first half as markets questioned the long-term appeal of U.S assets. We recognized the global financial order couldn’t rewire fast – and U.S. stocks have now caught up. Betting on such reversals has been one of 2025’s best-performing tactical strategies.
Second: Exposure to mega forces needs to be thoughtful, not indiscriminate. We believe mega forces like AI will be key drivers of returns, but capturing them requires constant tracking – of how they are evolving and what markets have priced in.
For AI, we think we are in the first of three phases: buildout, adoption and transformation. Huge AI spending is driving investment opportunities in the buildout phase, but the opportunities will look different in the latter two phases – and these phases may take time, if they occur at all. This uncertainty demands adaptability to incoming information. Consider, for example, the need to reassess the U.S. tech investment case after China’s seemingly more efficient DeepSeek model sparked a tech equity slide.
Third: Reliable diversifiers are scarcer in a changing world. Investors can no longer rely on longer-term U.S. Treasuries to offer protection during equity selloffs. Yield movements have broken with pre-pandemic norms as fiscal concerns have mounted, with 30-year U.S. Treasury yields rising as two-year yields fall, reinforcing our preference for shorter-term Treasuries.
Global yields echo this pattern, though a weaker dollar provides some cushioning for U.S. investors. Gold has surged as investors seek other ways to build resilient portfolios; indeed, foreign central banks now hold more gold than U.S. Treasuries, Bloomberg data show. Bitcoin, hedge fund strategies and private assets can also provide diversification, we think.
An eventful 2025 so far offers lessons for the rest of the year. The world can’t change overnight, but sentiment can. Mega forces need constant tracking. And investors must find new sources of resilience as diversifiers grow scarcer.
Wei Li, Managing Director, is the Global Chief Investment Strategist at BlackRock Investment Institute at BlackRock Inc.
Roelof Salomons, Chief Investment Strategist for the Netherlands – BlackRock Investment Institute, Tuan Huynh, Chief Investment Strategist for Germany, Austria, Switzerland and Eastern Europe – BlackRock Investment Institute, and Michel Dilmanian, Portfolio Strategist – BlackRock Investment Institute, contributed to this article.
Disclaimer
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.
© 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 Sept. 2, 2025, on the BlackRock website. Used with permission.
Image: iStock.com/Prostock-Studio
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