Why We Remain Pro-risk

Key Points:

Powerful restart

We stick to our pro-risk stance and tweak our tactical views as the U.S. leads a powerful global economic restart and our new nominal theme plays out.

Market backdrop

Stocks were little changed on the week as markets digested strong first quarter earnings reports and bond yields eased.

Policy focus

The Federal Reserve policy meeting will be in focus as markets look ahead to a potential tapering of its bond purchases to be signaled as early as June.

A powerful economic restart is underway in the U.S. – with Europe and emerging markets (EMs) set to follow. At the same time our new nominal theme has been playing out, with a hefty jump in inflation expectations but a more muted rise in nominal yields. Against this backdrop, we reiterate our pro-risk stance and refine our tactical views in response to adjustments in market pricing and valuations.

Chart of the week

U.S. GDP estimates, global financial crisis and Covid-19 shock

Forward looking estimates may not come to pass. Sources: BlackRock Investment Institute, Federal Reserve, and Reuters News, with data from Haver Analytics, April 2021. The charts show the level and estimates of U.S. GDP over time for the global financial crisis (GFC) and the Covid-19 shock. Both series are rebased to 100 for the year prior to the shock – 2007 and 2019. Estimates are from the Fed’s Federal Open Markets Committee’s Summary of Economic Projections published through 2008 on the left and 2020-21 on the right. The level of GDP is derived from the FOMC’s forecasts of GDP growth from the fourth quarter of the prior year to the fourth quarter of the current year. Early estimates are as of Jan 2008 for GFC (June 2020 for Covid); later estimates as of Nov. 2008 (Mar. 2021 for Covid).