BlackRock has a ‘worsening macro outlook’ and sees little chance of a perfect economic scenario — but it likes these 3 pockets of value in the market

BlackRock has a "worsening macro outlook" and sees little chance of a perfect economic scenario - but it likes these 3 pockets of value in the market
The Fed raised interest rates by 0.5% to fight inflation, the largest increase in more than two decades.
Since the rate hike announcement, the S&P 500 is down about 7%, bringing its year-to-date loss to 18%. And wealth management giant BlackRock doesn't expect a recovery any time soon.
"We are reducing risk amid a deteriorating macroeconomic outlook: the shock in commodity prices and a slowdown in China growth," writes Jean Boivin, head of the BlackRock Investment Institute, in a recent note to investors. "Furthermore, we see little chance of a perfect economic scenario with low inflation and growing growth."
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However, the leading wealth manager points out that the recent sell-off has "restored some value in niches of the market".
Here's a look at each of them.
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European government bonds
With Russia's invasion of Ukraine, Europe is a tricky place to invest these days. But that hasn't stopped BlackRock from liking one particular asset class in the region: government bonds.
"We warmed up to European government bonds because we believe that market expectations of interest rate hikes by the European Central Bank (ECB) are too dovish," says Boivin.
He notes that the energy shock from the Russia-Ukraine war "will hit Europe hard." And according to Boivin, the ECB will be in no rush to hike rates.
BlackRock upgrades European government bonds to neutral.
Investment grade credit
BlackRock also upgrades investment-grade credit bonds to neutral.
Not all bonds are created equal. Some borrowers are more likely to pay off their debt than others. When a bond is rated investment grade, it means it has a relatively low risk of default.
“We see some value in IG loans as annual coupon yields approach 4%. This is the highest level in ten years,” says Boivin.
It's easy to get exposure to investment grade bonds these days. For example, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) gives investors access to more than 1,000 high-quality corporate bonds in a single fund.
US and Japanese stocks
Stock markets around the world are having a rough time in 2022, but BlackRock isn't exiting completely. In this environment, BlackRock favors developed market equities over emerging market equities, with two countries being singled out.
"Overall, we remain overweight equities, with a preference for US and Japanese equities, and underweight US Treasuries," writes Boivin.
There are many ways to invest in the US stock market. You can select individual stocks yourself. Or you can gain exposure to groups of stocks with ETFs.
If you simply want to track the S&P 500 Index, consider low-cost funds like the Vanguard S&P 500 ETF (VOO) or the iShares Core S&P 500 ETF (IVV).
For those looking to invest in specific sectors of the stock market, names like the Financial Select Sector SPDR Fund (XLF) or the Energy Select Sector SPDR Fund (XLE) will do.
ETFs also allow you to invest in Japanese stocks. The iShares MSCI Japan ETF (EWJ) offers exposure to large and mid-cap companies in Japan. The WisdomTree Japan Hedged Equity Fund (DXJ) gives investors exposure to the country's equity market while hedging against exchange rate fluctuations.
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