JACKSON HEWETT: BlackRock reveals five key forces it says will shape our financial future in years to come

President Trump’s latest tariff tirade is finally starting to hit home.

When the Don won the election in November, markets soared. Investors saw an administration championing low regulation, low taxes with a pro-business agenda that would juice company earnings.

What they have been delivered is a grab bag of ideologues who professed to be free-market libertarians but have turned out to be the worst kind of interventionists with little regard for the importance of the institutions of government that have underpinned American exceptionalism.

Now markets are starting to crack, which may encourage the President to temper some of the bull-in-a-china-shop energy of the first month of his administration.

If he doesn’t, watch out.

The four main US indices — the Dow, the NASDAQ, the S&P 500, and the Russell 2000, representing the gamut of companies from the largest industrials, tech firms, and small and medium corporations — began the year with bullish energy, with some bourses up an extraordinary 50 per cent over the previous two years.

After such a meteoric rise, it is not unusual to see some of the heat coming out, but this selloff has been very broad-based.

Since mid-February, when Trump’s tariff proposals really ramped up, the NASDAQ has fallen 4 per cent, the Dow, 3.3 per cent, the S&P 500, 2.5 per cent, and, perhaps most consequentially, the Russell 2000, 6.3 per cent.

Last night’s plunge was prompted by Donald Trump’s declaration that he would go ahead with 25 per cent tariffs on Mexico and Canada and slap another 10 per cent tariff on China. Even the most rusted-on MAGA supporter should now be starting to see that with tariffs applied at that rate, prices have to go up.

The sentiment is spilling through to the economic readings, including a softer-than-expected consumer confidence, disappointing retail sales numbers, and a weak consumer sentiment reading.

That is why the fall in the broad-based Russell Index is so prophetic. The companies in that index are concentrated on the American domestic economy, and it is there that Mr Trump’s destabilising policies will hit hardest.

As The Nightly wrote on Thursday, the world’s largest fund manager, BlackRock, with $US11.5 trillion under management, has looked into the future and declared it will be an era very different from the “great moderation” with low and stable inflation that helped drive the bull market of the post-GFC era.

Now BlackRock sees a universe where high tariffs and a rewiring of global supply chains will mean inflation will be high and volatile for many years to come, according to BlackRock Investment Institute’s Asia Pacific strategist Ben Powell.

The five investment mega forces

1. Demographic divergence

Ageing populations in developed economies are set to constrain economic growth by reducing the workforce, increasing government debt, and straining healthcare and retirement systems. While AI and immigration may help fill the gap, BlackRock expects they are unlikely to fully offset these pressures.

Shrinking populations can’t grow as fast as before, and retirees will continue spending even after they have stopped creating economic output, pushing up inflation. BlackRock believes the consequence is overall slower growth and persistent inflation, which could keep interest rates elevated. Governments will face higher debt servicing costs at the same time as slowing tax revenues.

As an investment, healthcare sectors in the EU and the US are in vogue.

In emerging markets, countries with rising populations like India, Indonesia, and Mexico, are potential growth areas with BlackRock looking at ways to expand its offerings.

2. Digital disruption and AI

The great promise of AI has already borne out in the meteoric rise of chip companies like NVIDIA. BlackRock thinks of chip companies and data centres as the build-out phase of AI, with investment in data centres potentially surpassing $US700 billion each year by 2030.

The build-out phase also includes infrastructure like energy, industrial real estate, and other utilities. The next phases of disruption are yet to materialise, but BlackRock sees a maturation process where software and applications will begin to emerge. Finally, the transformation process is where companies unlock the productivity gains.

3. Geopolitical fragmentation

As flagged by The Nightly on Thursday, the breakdown of the global geopolitical consensus will have profound implications. Donald Trump’s hostility to multi-lateralism, with the country’s imposition of tariffs and retreat from global institutions like the UN and World Trade Organisation, will usher in a new era of competing geopolitical and economic blocs.

BlackRock sees countries favouring national resilience and security at the expense of economic efficiency. The result is permanently higher inflation, vulnerability to economic shocks, and government investment in defence, infrastructure, and energy self-sufficiency.

4. Transition to a low-carbon economy

BlackRock has moderated its view that a low-carbon priority is a core consideration of governments in the wake of Donald Trump’s election.

Global equity returns for renewables-focused energy stocks have swung into the negative in the past four years, but BlackRock notes that annual renewable power investment has increased by $350 billion a year since 2019. The fund manager sees a world where energy demand will only continue to grow, with data centres and AI hyperscalers experiencing voracious energy demand.

The shifting sands of policy preferences for renewables versus traditional energy means that investors will need to be nimble.

5. A new financial architecture

BlackRock believes regulation, rising interest rates, and technological disruption are tearing up the traditional playbook for banks.

Fintech is also shaking up the financial system, with AI, digital currencies, and asset tokenisation all playing a role in reshaping how credit is created and who controls it. It will be a high stakes game based on speed and adaptability.

With interest rate rising, deposits will no longer be the cheap and stable funding source they once were, forcing banks to rein in lending. That means companies will increasingly turn to capital markets, private lenders, and non-traditional sources for credit.

Katie Petering, Head of Multi-Asset Investment Strategy for BlackRock Australasia, said the firm was increasingly looking to satisfy investor demand for unlisted vehicles.

“All of our institutional investors have high demand for private markets. About 40 per cent of ultra-high-net-worth portfolios are allocated to private markets, and that demand is increasing,” she said.

Portfolios for an unstable world

While the big themes all offer opportunities for investors, they come with a caveat. Many point to a future of high inflation, slower growth, larger government debts, and political instability.

As pointed out by The Nightly’s coverage yesterday, that means structurally higher interest rates into the future, driven not just by inflationary tariffs and seized-up supply chains, but by competition for capital from governments facing higher outlays for health and defence, against a money-hungry AI investment boom.

For investors, BlackRock warns, it is time to get much more granular.

“It’s a totally different investment situation. If you’re still using the old ‘great moderation’ mindset, you’re going to miss the new game,” Mr Powell said, while explaining they are still confident about pockets of the US market.

“Our message is that the world has changed and necessitates a new investment playbook, about nuance and specificity and picking your spots,” Powell said.