Weekly video_20260302
Devan Nathwani
Portfolio Strategist, BlackRock Investment Institute
Opening frame: What’s driving the market? Market taking
camera frame
Markets are being reshaped by several large intersecting forces. The magnitude and direction of its long-term effects are not clear. That’s why we believe it’s important to rethink key issues and focus on underlying economic factors rather than asset class labels.
Title slide: Rethinking long-term investing
1: A market in the crosscurrents of giant forces
Today, the market is caught up in the crosscurrents of huge forces. AI is at the forefront, and Nvidia’s quarterly results last week showed a sharp increase in spending on building AI. At the same time, the decline in the software sector signals a new focus on singling out perceived AI losers. With the US tariff system once again in transition, geopolitical fragmentation is also in the spotlight.
These forces have the potential to change not only the composition of the economy but even its trajectory. But no one knows the final final state. There are several possible scenarios that could lead to very different return outcomes.
For example, AI productivity improvements could lead to an unprecedented breakthrough from the trending 2% growth rate. This may not happen either, and further geopolitical fragmentation could undermine global growth and drive up risk premiums for U.S. assets.
2: Beyond static allocation
To address this challenge, we have evolved our capital market assumptions for professional investors only. First, we revisit our largest portfolio calls more frequently as new information arrives.
Second, we focus on fundamental economic drivers rather than asset class labels. Think about building AI. AI cuts across public and private market asset classes, creating opportunities in real estate and private equity as well as public and private infrastructure. A more granular approach to portfolio construction is needed to reflect where the big forces emerge.
Third, budget for risk comprehensively. We see increasing decentralization as the great powers transform their power. This strengthens the argument that alpha should be treated as an explicit allocation decision rather than an add-on.
3: Impact on investment
We have evolved our views based on over five years of strategic vision. Currently, our starting point scenario favors inflation-linked bonds, as we expect inflation to rise due to increased AI and settle above pre-pandemic levels. This build-up is likely to be increasingly financed through bond issuance, resulting in widening of credit spreads. Still, we lean toward high-yield credit because it offers attractive income and is less susceptible to interest rate fluctuations.
We also support infrastructure. This allows investors to engage with the topic of AI without having to call out the winners of AI adoption.
In conclusion: this is our market view
We focus on inflation-linked bonds and high-yield credit with a strategic time horizon of five years or more. In the private market, we will prioritize infrastructure that will benefit from increased AI adoption.
End frame: Read more: blackrock.com/weekly-commentary
