In the past few weeks, the S&P 500 (blue) surpassed its previous all-time high set in February and is now up approximately 7% year to date. However, US stocks remain far behind international indices (red) so far this year. US small company stocks (green) are still negative and bonds (pink) are slightly positive.
While the US markets remain jittery over threatened tariffs, stocks continue to climb on optimism the higher tariffs will never actually be implemented as deadlines continue to be extended. If President Trump were to follow through on some of these threats, markets could quickly dip lower to account for the uncertainty of outcomes.
The uncertainty around tariffs and trade policy is starting to be reflected in the capital market forecasts we use in our retirement planning and portfolio management. We like to stay abreast of the latest insights from some of the world’s largest money managers, including Vanguard and BlackRock.
For the first time ever, BlackRock is now publishing 2 sets of forecasts in an attempt to capture the widening range of potential outcomes in the markets.
https://www.blackrock.com/institutions/en-axj/insights/charts/capital-market-assumptions
The 1st set of forecasts are similar to their past forecasts, where they say, “we assume hard economic rules limit the pace at which the structure of the global capital market can change.” These forecasts haven’t changed much over the past few months:
US large-cap stocks 6.67% 10-year annualized expected return
Non-US large-cap stocks 8.64% 10-year annualized expected return
Their 2nd set of forecasts are new, and are referred to as their “alternative scenario”. I see these forecasts as a sort of worst-case scenario, but BlackRock describes them this way – “In our alternative scenario, the trade policy fallout is more severe, triggering a near-term contraction in U.S. activity, even weaker growth, and higher inflation. Investors demand even more risk premium for holding U.S. assets and U.S. term premium rises even further as foreign bondholders question the sustainability of U.S. debt.”
US large-cap stocks -0.28% 10-year annualized expected return
Non-US large-cap stocks 10.08% 10-year annualized expected return
As I said, I believe these types of forecasts are not very likely, but BlackRock’s decision to begin publishing them are indicative of the greater uncertainty that’s making planning and investing more difficult for both institutions and individual investors.
Have a great weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
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