Blackrock Details 3 Developments That Could Flip Them Into Risk-off Mode

BlackRock CEO Larry Fink

Brendan McDermid/Reuters

• BlackRock is eyeing three triggers that could pivot the firm into risk-off mode.
• Strategists said they're monitoring Trump's policy stance, investor sentiment, and other factors.
• Talk of a stock correction is growing on Wall Street amid the S&P 500's rough start to the year.

BlackRock is still embracing risk, but it says there are a handful of developments that could push the firm into risk-off mode, according to a note strategists put out on Monday.

"We think US equity gains could roll on. Yet an economic transformation and global policy shifts could push markets and economies into a new scenario," strategists wrote. "We look through near-term noise but outline triggers for adjusting our views, by either dialing down risk or shifting our preferences."

Investors are becoming more aware of market risks as equities continue their rocky start to the year, with the S&P 500 down 1% from levels at the start of January. Talk of a stock correction is also on the rise, with some Wall Street forecasters calling for as much as a 16% drawdown in US equity prices.

Here are three things BlackRock says could cause the firm to shift to a more risk-off stance:

1. Less market-friendly policies from Trump

Trump's presidency was widely thought to be positive for risk-assets, with investors eyeing looser regulation and the potential for higher growth in 2025 after he secured his election win in November.

But Trump also has the potential to adopt a "less market-friendly approach" to policy, BlackRock said, which would involve the president-elect following through with promises to slash taxes and levy steep tariffs on US imports.

Those policies could raise inflation, deepen the US's debt balance, and influence interest rates to stay higher for longer — all potential headwinds to risk assets.

"This plan would clash with Trump's calls for a weaker dollar to boost US manufacturing and his push for rate cuts. We look through noisy headlines are policy and focus on how policy changes take shape this year," strategists added.

2. Souring investor sentiment

Investors feeling more dour on the outlook for stocks has the potential to weigh on the market. Traders may be keen to dial back risk due to weak corporate earnings, or high valuations in the tech sector, BlackRock said.

"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 — even if we think valuations can't be viewed through a historic lens as an economic transformation unfolds," strategists added.

Sentiment has already started to lean more pessimistic in recent weeks. 37% of investors said they were bearish on stocks over the next six months, according to the AAII's latest Investor Sentiment Survey, up from the historical average of 31%.

3. Signs of fragility in financial markets

Continued signs of "elevated vulnerabilities" in financial markets are another trigger that could push BlackRock away from its risk trade, strategists said.

The firm pointed to the recent sell-off in US bonds, which has been fueled by concern that Trump's policies could stoke inflation, which could cause interest rates to remain higher for longer.

Bond yields are likely to climb higher from current levels as investors demand more for the risk of holding onto debt securities, strategists added.

"The refinancing of corporate debt at higher interest rates is another risk. It could challenge the business models of companies that assumed interest rates would remain low," the note said.