Market review
It was a highlight reel month for stocks – juking typical seasonal patterns of weaknesses – while bonds stayed confined mostly to the sidelines. Heavy favorite growth and tech stocks once again scored impressive gains, turning in back-to-back months of MVP performances after a superbly dominant earnings season. Underdog emerging markets stocks rebounded to the upside after a shaky start to the year, benefiting from some strategic stimulative assists from the Chinese government. US inflation data surprised markets with a higher-than-expected print and pushed some investors to rethink their bets on interest rate cuts, leading to some pressure on Treasury prices. Less rate-sensitive high yield bonds outperformed their investment grade peers, closing the month marginally positive on the year.
Market performance: February 2024
On… the Magnificent 7:
“Sales, earnings, and forward guidance from some of the largest names in tech have crushed even the loftiest expectations. Subsequent price moves higher have been noteworthy, but these stocks have arguably gotten cheaper, as their prowess at cashflow generation outpaces their current corresponding price appreciation. This adds fuel to our bullishness, persuading us to tilt more aggressively into growth over value and into the names that are driving earnings.” – Michael Gates, Managing Director, BlackRock
Asset class views
Source: BlackRock as of 3/1/2024, Views are subject to change
We are overweight U.S. stocks, leaning into tech and large cap companies with the most resilient businesses and robust earnings growth, with an increase to value-oriented stocks based on strong earnings surprise momentum. We are overweight U.S. treasuries with a barbell preference for short- (floating rate) and long-duration nominals, with complementary exposure to Treasury Inflation Protected Securities to take advantage of potentially falling real rates.
We maintain near benchmark-weight in emerging market bonds in fixed income-heavy models due to attractive yields and potential softening dollar strength. We recalibrate growth/value factor positioning, maintaining a targeted preference for tech stocks but unwinding other broad growth-oriented bets as value-centric 2023 losers potentially come back into fashion. We are generally neutral on US high yield bonds, with a targeted tilt toward higher quality and attractively valued issues.
We are underweight international developed market equities due to sluggish relative corporate earnings signals and more pronounced downside vulnerability to potential geopolitical turmoil. We remain underweight emerging market stocks but with a carved-out preference for those countries with the most attractive earnings and economic growth prospects (like India and Taiwan) and purposefully limiting exposure to China. We hold close to benchmark exposure to investment grade credit
and mortgage-backed securities, increasing exposure to a freshly embedded active fixed income strategy capable of generating attractive yields and swiftly adjusting to changing market conditions.
