Stock markets: BlackRock's advice

Different stock markets global companies started the year by hitting the historic highs, supported by resilient economic data and solid corporate earnings. As the second quarter begins, there are questions about what's next for stock markets. According to the team's report BlackRock Fundamental Equities on the market outlook for the second quarter of 2024 stock market growth is occurring in multiple areas of the market while the outlook for Europe and Japan rewards the active stock selection. Furthermore, BlackRock experts highlighted the opportunities afforded by small cap stocks as economic conditions improve.

Expectations for the second quarter

In the report, BlackRock analysts argue that stock market momentum can continue in the second quarter of the year, although returns could be more limited and in a broader range of the market. “However, there will be no return to the era of “easy money” post global financial crisis (GFC), but we will see a greater gap between those who performed better or worse in the stock market in a more alpha-centric investment regime,” emphasized Helen Jewell – Chief Investment Officer, BlackRock Fundamental Equities, EMEA. Global technology stocks led the way in 2024. “We believe that i potential rate cuts could lead to an expansion of growth also to less expensive market areas, for example quality company with attractive long-term earnings growth potential,” he added.

The lens on Europe

The markets have reached historic highs, but the valuation gap compared to US stocks it remains historically large. According to BlackRock experts, there are three reasons why this gap could narrow: a favorable environment, potential rate cuts and the return of buybacks. On the first point, Jewell underlines that the European macroeconomic context has improved. On the second hand, he points out that inflation in Europe has returned to levels close to the European Central Bank (ECB) target, increasing the probability of rate cuts in the second quarter: “this should provide further support to European economies and securities” . Finally, the Chief Investment Officer points out that even if i European stocks they may not be attractive still strong interest from global investors, “company management recognizes the attractiveness of their shares at these prices, with buybacks in Europe reaching historic highs”.

Focus on Japan

BlackRock also provides three reasons to explore Japan: corporate changes, cohesion of the country system and the propensity to invest of companies. Japanese stock valuations are close to their average levels over the last decade, but overall stock returns – which indicate the profitability and efficiency of companies – have risen following corporate reforms implemented for several years. Furthermore, the report suggests the activities of major institutions should combine to lend further support to Japanese stocks. Finally, the “friend-shoring” trend is boosting Japanese businesses as international companies invest capital in the country.