BlackRock Analyst Warns Of 'New Geopolitical Regime' That Could Disrupt Markets: 'The Old Playbook No Longer Applies'

BlackRock, the world’s largest asset manager, has issued a warning about the impact of geopolitical volatility on global markets.

What Happened: BlackRock’s analysts, led by Wei Li, have highlighted the increasing geopolitical risks and their potential to disrupt traditional market dynamics, reported Business Insider on Monday.

“The old playbook no longer applies, in our view,” the analysts said in a note, pointing out that the S&P 500 and Dow Jones Industrial Average have recently reached record highs despite the geopolitical turmoil.

Li emphasized that geopolitical fragmentation is contributing to persistent inflation pressures and keeping policy rates above pre-pandemic levels. The recent Red Sea attacks have already begun to impact shipping costs and goods inflation.

These developments have led to a drop in the odds of a Fed rate cut in March, from 75% a month ago to 40% currently, as per the CME FedWatch Tool.

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Li also noted that with increasing political tensions, supply chains are becoming longer, with countries like Mexico and Vietnam acting as intermediary trading partners between different power blocs.

Moreover, the US-China rift, particularly concerning Taiwan, remains a significant flashpoint. Li believes that intense structural competition between the U.S. and China, especially in defense and technology, is the new normal.

Why It Matters: BlackRock’s warning comes amid a series of geopolitical and economic developments that could significantly impact global markets. In a recent interview, BlackRock’s Chief Investment Officer of global fixed income, Rick Rieder, dismissed recession fears and predicted a potential 12% surge in stocks for 2024.

Meanwhile, the global economy is facing other challenges. For instance, economist Campbell Harvey, who has historically used the inverted yield curve as a recession predictor, has forecasted a slowdown for the U.S. economy in 2024.

BlackRock has also been actively tracking the expansion of AI opportunities beyond the semiconductor and cloud sectors, which could be further impacted by the new geopolitical regime.

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