A few days ago, the BlackRock Investment Institute of BlackRock published the three lessons regarding investments that can be extrapolated from 2024.
In addition to these three lessons, they have also published an analysis that comments on the main events that occurred in the financial markets in the year just concluded.
The three lessons of 2024 according to BlackRock
The first lesson that the BlackRock Investment Institute has learned from 2024 is to lean into narrative changes.
They write that 2024 has reinforced the fact that it is an economic transformation, not an economic cycle, leading them to rely on market moves driven by other interpretations, and to expect volatility.
The second lesson is to also consider the context in which the markets operate, in addition to analyzing the markets themselves.
For example, they point out how US stocks have increased by over 20% in 2024, but primarily driven by major tech stocks, while US Treasury yields closed the year above 4.50% because the markets have priced in the rate cuts by the Fed.
The third lesson is that much will depend on what happens in these days, given that market expectations have been reduced to only two Fed rate cuts over the course of 2025.
In summary, 2024 has helped us shape our outlook for 2025, starting from the ongoing economic transformation (which is not just a simple economic cycle like the others), moving through the opportunities being created from this misunderstanding, and arriving at expecting the unexpected, as transformation and political changes can also create surprises and volatility.
Interest rates as a key factor
The main key to understanding the analysis by BlackRock Investment Institute seems to be related to interest rates.
In fact, they indicate that we might be forced to embrace the idea of higher rates for a longer period of time than expected.
We enter 2025 with an unusual macroeconomic scenario, also because last year the widely tested recession indicators actually failed.
In particular, inflation has fallen even though growth has remained above the historical trend, and the Fed has cut rates by 100 basis points despite financial conditions already being easy.
Data not in line with the classic interpretations of the economic cycle have led to disproportionate market responses and abrupt changes in the narrative.
BlackRock: transformation and opportunities
In such a framework, they claim that the greater market volatility creates “abundant investment opportunities”.
For example, they mention the fluctuating prospects of the Fed, which has shifted from talking about a cycle of easing to a true recalibration.
At the base of this reasoning is precisely the consideration that what is happening is not a classic economic cycle, but a true transformation.
They write:
“We see mega forces, or structural changes, reshaping economies and markets”.
Moreover, this transformation could even modify long-term trends, thus opening up spaces for a wide range of opportunities.
In light of this, they claim to remain risk-prone, but keeping an eye on various signals that could instead end up changing their view, should other more probable scenarios emerge, such as the one in which growth might not be able to return to historical trends.
Rapidity and volatility
The BlackRock Investment Institute also points out that this transformation could also happen quickly.
From here the idea that it may be accompanied by a certain volatility, and by more surprises than usual.
On the other hand, they expect to see rapid changes in the political sphere as well, to the point of even imagining the possibility of upheavals and surprises, within a world already more fragile due to the increased strategic competition between the United States and China.
The key risk, at the political level, for 2025 is identified as trade protectionism (i.e., tariffs).
Conclusion
In conclusion, regarding the American market, the concern remains that of a possible return of inflation, and therefore the impossibility for the Fed to proceed with many rate cuts.
The report does not outline a possible scenario for 2025, also because it repeatedly emphasizes the possibility of surprises or even upheavals occurring.
It focuses instead precisely on the changes, and in particular on the unforeseen novelties that make the current situation more difficult to interpret, in light of classical economic theories.
However, in such a scenario, while on one hand there is certainly greater uncertainty, on the other hand there is also the possibility that volatility remains high in the financial markets, and this in fact creates good opportunities (or, at least, it should create them).
It will therefore be necessary to remain vigilant, and not take anything for granted, with a particular eye on the USA economy and the monetary policy of the Fed.