BlackRock Inc (NYSE:BLK) doesn't anticipate rate cuts until the second half of 2024. The shape of the yield curve and the trajectory of growth will be key drivers of returns.
Gargi Pal Chaudhuri, head of iShares Investment Strategy Americas at BlackRock, shared her view on the outlook.
"The shape of the yield curve is now signaling that it's time to consider allocating out of cash," noted Chaudhuri. She believed that sitting in cash in 2024 would mean missing out on bond and equity market returns.
Chaudhuri identified opportunities to deploy cash selectively across asset classes:
- Fixed income: pairing intermediate duration core holdings with differentiated income-seeking exposures.
- Equities: adding downside protection in core exposures while taking targeted risk in loveable laggards.
An interesting fact that came to light from the report was that in the previous five hiking cycles since 1990, the Fed paused an average of 10 months between its last hike and its first cut. On average, stock and bond returns have been higher during the pause period than in easing periods immediately following the first cut.
Frequent portfolio adjustments may be needed in 2024, owing to:
- Geopolitical risks
- Election cycles
- Worsening U.S. fiscal backdrop, and
- Shifting central bank narratives
For equity allocations, managing macro risks in a slowing growth backdrop will be key.
"In a shifting macro environment, remaining invested can be paramount, but adding downside resiliency to core equity holdings could make sense for many investors," said Chaudhuri.
Using ETFs as investment vehicles could be a good strategy in such a macro-environment, per BlackRock, as these efficiently adjust to rapidly changing realities.
For reference, SPDR S&P 500 ETF (NYSE:SPY), iShares Core S&P 500 ETF (NYSE:IVV), Vanguard Total Stock Market ETF (NYSE:VTI) and Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) are the most popular and biggest U.S. equity tracking ETFs in the U.S.
The most popular intermediate-term bond ETFs are Vanguard Intermediate-Term Corporate Bond ETF (NYSE:VCIT), iShares 7-10 Year Treasury Bond ETF (NYSE:IEF) and Vanguard Intermediate-Term Treasury ETF (NYSE:VGIT).
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