Listen to The Bid – BlackRock’s investment podcast

Episode Description:

Innovation in the investment industry is a hot topic thanks to the rise of things like AI, shifting investor demand, and volatile markets that are requiring more agility from investors. Today we'll be exploring the innovations driving both the ETF Market and Index investing more broadly, examining the latest trends and challenges facing investors, and how technology is playing a role in shaping these products.

Joining Oscar live in London at BlackRock’s annual UK Wealth Investors Forum is Manuela Sperandeo, Head of Product for iShares in EMEA and Stuart Doole, global head of Equity investing research at MSCI, an investment research firm that provides stock indexes, portfolio risk, and performance analytics.

Sources: ‘Global ETF assets reach $11 trillion’, Investment News, February 2024

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal.

Actively managed funds do not seek to replicate the performance of a specified index, may have higher portfolio turnover, and may charge higher fees than index funds due to increased trading and research expenses.

The iShares ETFs that are registered with the US Securities and Exchange Commission are distributed in the US by BlackRock Investments, LLC. This material does not constitute an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. BlackRock Is not affiliated with MSCI.

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

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Oscar Pulido: Welcome to The Bid, where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.

2024 has been the biggest election year globally on record, and here in the US in the wake of one of the most unusual election cycles in history. Investors are wondering what is next for markets and how can they position themselves for success during a volatile period.

We're recording this on Wednesday, November 6th, around 3:00 PM in New York, and today I'm pleased to welcome back Catherine Kress, head of Geopolitical Research and Strategy at BlackRock. Together we'll examine the results and the impact on markets and explore what investors can expect from a new government in 2025

Catherine, thank you so much for joining us on The Bid.

Catherine Kress: Thanks, Oscar. I'm glad to be here.

Oscar Pulido: So, Katherine, we all know this is a big year for elections and a lot of people have had Tuesday, November 5th circled on the calendar because that was the day of the US election. That day has now come and gone. So where are we in terms of results?

Catherine Kress: So, the 2024 presidential election was widely expected to be the closest race in US history. We came into yesterday expecting a prolonged vote count and significant uncertainty, perhaps for weeks, if not months. But this morning, we woke up to a clear outcome. Media outlets, broadly projected Republican candidate Donald Trump to be the 47th president of the United States. Republicans are now projected to take control of the Senate for the first time in four years. And the house as we sit here today has yet to be called.

This was a big win for former President Trump and here 2016 isn't really the right framework for thinking about his win because in 2016, Trump lost the popular vote but won the electoral college. The better comparison is perhaps 2004, 2012, when the popular vote and the electoral vote aligned. This is the first time since 2004 that Republicans have actually won the popular vote.

In the Senate, Republicans as of this recording, have at least 52 seats. They've picked up Montana, Ohio, West Virginia, they're slight favorites in Pennsylvania, which would give them 53 seats. But in the other outstanding racist, Democrats have a slight edge, so it looks like Republicans will have roughly of 53- 47 majority. And then in the house, as I noted, the race is not yet determined.

Oscar Pulido: And so, how have markets then reacted to the news and what do you expect between now and when the inauguration would take place, which would then be in January of next year?

Catherine Kress: So, markets reacted sharply to the news. One of the reasons for this is because the election is out of the way- markets like clarity.

S&P 500 futures jumped more than 2% to a record high, the US dollar rallied posting its biggest gain against major currencies since 2000, US Bond yields jumped, and Bitcoin spiked as well. These were big moves for sure, but I'd expect them to moderate over time.

As we think ahead to the coming weeks. Key dates include December 11th, that's the National Safe Harbor deadline, by which states must certify and transmit their results to the electoral college. December 17th is when the electoral college convenes, and state electors officially cast their ballots for presidential candidates. And then on January 6th, the new Congress meets to formally count the electoral votes. And then of course, on January 20th, Donald Trump will take the oath of office as the next president of the United States.

Oscar Pulido: And I mentioned at the outset that this was a big year for elections, not just because of the US election, but globally. I believe the statistics, point to 2024 as, being, a year where, many countries and a big part of the global population was, going to the polls. So as that cycle has played out, what are you observing? What have we seen?

Catherine Kress: Certainly, so it's been a historic election year, as you mentioned. More than 70 countries representing more than half the global population have gone to the polls. In some elections, like earlier this year, those in France have given way to political and market volatility. Others, like in the UK, while widely anticipated, represented historic change. One thing that's been clear is it's been a punishing year for incumbents. Across a range of examples, incumbents have been pushed from power lost their majorities. We saw this in Germany and Japan over the last few weeks, and of course, most recently here in the US.

Now, there are a number of reasons for this anti-incumbency trend, but one of the most prominent ones is the lingering economic effects of the Covid pandemic. Persistent inflation, higher for longer interest rates. Cost of living pressures, elevated unemployment rates are driving voter behavior. These types of issues have been historically insidious for politicians.

And even in the US, despite a resilient economic backdrop, inflation coming down, voters wanted change. For Kamala Harris to run as the sitting Vice President was something that's very hard for her to do. If you think back to the last 188 years, only once has a sitting Vice President actually successfully run for President of the United States, and that was George H.W. Bush. So, we've seen this anti-incumbency trend extend to the US as well.

Oscar Pulido: So, we have more clarity, as you pointed out on the election results. Not just the presidential results, but then also within the Senate. And we're still waiting on the house, but now that we have some clarity there, what does it mean in terms of policy? Do we have clarity on what policy changes, we should expect when we go into January 2025?

Catherine Kress: Sure. So, as you noted, control of Congress is key to President Trump's ability to enact his agenda going forward. At BlackRock, we're focused on policy changes in key areas like fiscal policy, trade policy, immigration, energy regulation.

We also expect a very different approach to foreign policy. So unified Republican control of Congress will be key, as I noted, for Trump to actually extend the expiring provisions of the 2017 Tax Cuts and Jobs Act, that's gonna be the central focus of fiscal policy next year. Trump is likely to propose new cuts, potentially including to corporate taxes.

Congressional budget, budget procedures allow deficit increases over the next decade, likely meaning persistent budget deficits. This is actually one of the factors we think will push up long-term treasury yields from a market perspective. On trade, Trump has proposed a wide range of tariffs, including 60% tariffs on China, 10 to 20% universal tariffs, tariffs on a range of other areas.

He will likely make trade an early priority, but implementation of some of these tariff proposals is uncertain at this stage. This protectionist stance generally would reinforce our views within the BlackRock Investment Institute around long-term themes like geopolitical and economic fragmentation, which is one of the structural factors we see keeping inflation higher in the medium term.

On regulation Trump's wind likely means some deregulation, I think markets are responding to this as well. We could see the rolling back of regulations for banking in particular. Big tech is one area that I think will remain a bipartisan focus, especially in the antitrust space. Under Trump, we would see Republicans aiming to boost energy production. Though, I'd note that US oil and gas output has already hit all-time highs under the Biden administration and ramping up production takes time.

Additionally, scaling back things like elements of the Inflation reduction Act, electric vehicle credits and the like, will be on the agenda, but for a variety of reasons, full repeal seems unlikely at this stage. Permitting reform is going to be a central focus for Trump as he seeks to expand energy infrastructure more generally. So, these are just a range of the themes we're thinking about as we consider the policy implications going forward.

Oscar Pulido: So, obviously those policy, changes and implications could take some time. You did mention that the markets have had an immediate reaction and some of that is that they don't like uncertainty in the markets, so now that we've removed a little bit of that uncertainty. But if you're an investor and you're thinking about your portfolio, what should you be thinking about maybe more medium term as it relates to markets?

Catherine Kress: So, in the near term, medium term, we see US equity supported by solid economic and corporate earnings growth, federal Reserve rate cuts. Longer term, a lot is gonna depend on how much of Trump's agenda he's enabled to enact and the shape of that. We think energy financial tech sectors can benefit partly from deregulation, as I mentioned. But multiple factors like fragmentation, as I noted, as well as supply constraints around an aging workforce, support keeping inflation above pre pandemic levels.

So, at the BlackRock Investment Institute, we are neutral long-term, US treasuries. We prefer medium term maturities and some quality credit for income, but we expect yields to rise over time as investors seek more compensation for the risk of holding bonds. The number one thing I would tell those, listening in today is that above all we advocate, staying in the markets, staying invested amidst any uncertainty that lies ahead, it truly pays to stay invested over the long term.

Oscar Pulido: Well, Katherine, we know you've been following this, story and the political cycle globally, really all, all year. And we appreciate you sharing the insights on the election results, but also what it means for the markets. And thank you for sharing those insights here on The Bid today.

Catherine Kress: Thanks Oscar.

Oscar Pulido: Thanks for listening to this episode of The Bid. On the next episode, I sit down with Rob Kapito for the Bid's 200th episode where Rob shares insights on the history of BlackRock, the firm's growth, the evolving culture, that has driven its success, and what lies ahead. Subscribe to The Bid wherever you get your podcasts.

<<THEME MUSIC>>

Disclosure

This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities, funds or strategies to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The opinions expressed are as of the date of publication and are subject to change without notice. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks. BlackRock does and may seek to do business with companies covered in this podcast. As a result, readers should be aware that the firm may have a conflict of interest that could affect the objectivity of this podcast.​

For more information go https://www.blackrock.com/corporate/compliance/bid-disclosures

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