Investing.com -- In a note Tuesday, BlackRock (NYSE:BLK) analysts outlined three critical factors that could prompt a shift from their current pro-risk investment stance as 2025 unfolds.
Despite an initial optimistic outlook, the firm said it remains vigilant about potential policy shifts, corporate earnings, and financial market vulnerabilities that could alter the economic landscape.
The first factor is the impact of U.S. trade, fiscal, and regulatory policies under President-elect Donald Trump.
“In a market-friendly approach, rolling back financial regulation and cutting government spending could boost economic growth and risk assets,” writes BlackRock.
Conversely, they explain that an approach involving extensive tariffs and extended tax cuts could exacerbate deficits, fuel inflation, and maintain high interest rates, creating a challenging environment for risk assets.
The second factor concerns investor sentiment, particularly in response to corporate earnings and the valuation of technology stocks.
The "magnificent seven" tech companies, which have been pivotal in the AI sector's growth, are expected to continue leading earnings.
“While earnings might surprise to the upside, any misses could renew investor concern over whether big AI capital spending will pay off and if high valuations are justified,” the firm adds.
Finally, BlackRock highlights vulnerabilities in the financial markets, such as rising bond yields and the refinancing of corporate debt at higher interest rates.
The increase in bond yields, driven by heightened term premiums, reflects investor concerns about fiscal policies and potential risks associated with holding long-term bonds.
They note that this could challenge companies that have relied on low-interest rates, although many have maintained strong balance sheets since the pandemic.
BlackRock continues to favor U.S. equities and remains cautious about long-term Treasuries but acknowledges that these three triggers could necessitate a reassessment of their investment strategy.