Investing.com -- Markets may face a sharp reaction if the narrative around tariffs shifts, warned Wei Li, global chief investment strategist at BlackRock (NYSE:BLK) Investment Institute, during a Bloomberg TV interview.
Li said markets are pricing bilateral negotiations around tariffs at the moment, adding that any disruption to this expectation could serve as a “wake-up call for risk assets, equities, and credit alike.”
Although Li characterized BlackRock’s current stance as “risk-on,” she emphasized that circumstances could quickly change. She also noted that there is optimism that the market's reaction to potential tariff announcements might create a feedback loop, influencing the incoming Trump administration’s trade strategies.
Li highlighted a growing divergence between the U.S. and European economies, citing recent European purchasing managers' indexes (PMIs) as evidence of decoupling.
This divergence, paired with weaker regional growth, underscores her preference for European government bonds. "This divergence of policy should support European duration in particular," she explained, predicting that the European Central Bank will have to ease more aggressively than the Federal Reserve.
In this uncertain environment, selectivity remains crucial. Li sees pockets of opportunity in companies and sectors with significant U.S. manufacturing operations, which are less vulnerable to tariff headlines.
She urged investors to focus on these areas while navigating an economy shaped by slower growth and persistent political uncertainty.