BlackRock Shifts Stance in US Market: Cuts Equities, Boosts Short-Term Treasuries
In Brief: BlackRock Shifts Stance in US Market: Cuts Equities, Boosts Short-Term Treasuries. BlackRock lowered its US equity weighting from «overweight» to «neutral» and upgraded short-term Treasuries to «overweight». The firm says markets have priced in 160 basis points of further Federal Reserve rate hikes since January, an expectation it views as excessive. The 10-year Treasury yield […]
BlackRock downgraded US stocks from "overweight" to "neutral" and upgraded short-term Treasuries to "overweight".
The firm says markets have priced in 160 basis points of more Fed rate hikes since January; An expectation that is too much for Blackrock.
The yield on 10-year US Treasury bonds increased by 110 basis points this year and reached about 5.25%.
After six years away from treasury bonds, BlackRock is once again buying them. The company is funding part of this shift by recognizing gains from US stocks, but it remains committed to the AI landscape.
The world's largest asset manager closed its "overweight" position in US stocks and cut it to "neutral". BlackRock described the decision as a short-term measure to manage risk amid volatile macroeconomic and market conditions, not a change in its fundamental views.
The company said it still believes in AI-driven transformation and prefers AI-related companies, stock exchange infrastructure and emerging market stocks. BlackRock also announced that it is monitoring the increasing public interest in AI policy and its infrastructure development in different regions of the US. According to the firm, higher interest rates sharpen the distinction between companies that can generate returns above their cost of capital and those that cannot.
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This decision was made while, based on the FactSet data cited in the BlackRock note, the third quarter profit of S&P 500 index companies is expected to grow by nearly 30% compared to the same period last year.
A part of the resources obtained from the sale of US stocks is used to increase investment in treasury bonds. BlackRock announced that the yield on the 10-year Treasury note increased by 110 basis points this year and reached about 5.25%. This increase was mainly due to growth in real interest rates, not rising inflationary expectations or the "maturity premium"; That is, the additional return that investors demand for holding long-term bonds.
BlackRock attributed the growth in real rates to more intense competition for capital and rising neutral interest rates. Also, according to this company, tensions in the Middle East and the increase in oil prices have caused a sharp return of market expectations about the Federal Reserve policy. Since January, markets have priced in 160 basis points of further Fed monetary policy tightening; An expectation that Blackrock considers excessive.
The company upgraded short-term treasury bonds to "overweight"; A part of the market that, according to Blackrock, has the greatest capacity to adjust expectations related to interest rate increases. Long-term bonds have also changed from "underweight" to "neutral"; Because BlackRock believes current yields provide better compensation for interest rate risk.
BlackRock said it has been "underweight" in Treasuries for most of the past six years, first taking such a position in October 2020, when the yield on the 10-year note was near 0.9 percent. The firm estimates that at current levels, bond yields could rise another 75 basis points over the next 12 months before total bond yields turn negative.
BlackRock is also reducing its underweight in Japanese government bonds; A position it has held since July 2023, when the yield on 10-year Japanese bonds was around 0.4-0.5 percent. This yield is now higher than 3%. In another change, the company reduced the weight of US government mortgage-backed securities to "neutral".
BlackRock said it was ready to increase its portfolio risk again as the outlook improved. This week's U.S. Consumer Price Index and Producer Price Index reports will provide the first snapshot of September inflation and are likely to weigh on expectations for Federal Reserve interest rates and Treasury yields.