A shifting economic environment

With inflation moderating and central banks starting to cut interest rates, investors and advisors are wondering where the economy and markets might go from here.

Kristy Akullian, BlackRock’s head of iShares investment strategy, Americas, expects growth to decelerate, but suggests that it’s unlikely that North America will enter a recession.

“We are heading into a different phase of the economic cycle,” she notes. “Growth will slow, but it will stay positive. Corporate profitability looks strong, particularly in the U.S.”

With this context, BlackRock has the confidence to lean into risk, she says. Akullian sees opportunities in high-quality companies with strong earnings relative to smaller caps and some of the more value names in the broader market.

“Being really specific around where you allocate risk to within the equity markets is going to be key for the rest of the year,” she explains.

As for fixed income, she recommends stepping out of cash “before it’s too late,” as lower rates could mean less interest earned on cash-like instruments. The best opportunity, she says, “is in the belly of the curve, where you still get a higher coupon and a higher carry than in the longer end of the curve, but there’s still enough duration to benefit as interest rates start to fall.”

As the economy works through slower growth and lower rates, markets could see more volatility. Those worried about the ups and downs may want to consider minimum or low-volatility funds. Akullian also sees opportunities in defensive sectors, such as utilities, which could benefit from increased investments in the electricity grid as energy demands related to artificial intelligence pick up.

“There’s a lot of ways,” she says, “that investors can stay invested while also reducing risk.”

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Disclosures:

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