The S&P 500 is down roughly 7% from its record highs — a relatively contained pullback given the scale of the geopolitical shock unfolding in West Asia. Paul describes this as a disconnect. Equity markets, he argues, have responded to the rates-and-inflation dynamic but have not meaningfully priced in the growth risk. If consumer spending weakens, earnings estimates are revised lower, and the growth picture deteriorates further, there is more downside from current levels.
ETMarkets.comTalking to ET Now, Paul says: “If you were to add on a worsening growth picture, there is further to fall from here — but it is not inevitable that is what is going to happen.”
What would bring BlackRock back to an overweight on US stocks? A credible and rapid deescalation in the region — one that pushes oil prices back below pre-crisis levels. Conversely, the longer the current uncertainty persists, the more likely it is that second and third-order economic effects take hold, making any recovery slower and harder. Paul is candid that daily headlines are shifting the picture too fast for high-conviction positioning, which is precisely why neutral is the right stance for now.
Could Fed hike rates ? Investors should take the risk seriously
On the question of Fed rate hikes — a scenario that market pricing has swung toward after previously expecting three cuts — Paul says investors should take the risk seriously. In a scenario of prolonged energy price elevation, inflation pressures could demand more aggressive central bank action than what is currently priced in. He stops short of calling for hikes as a base case, but pushes back firmly on dismissing the possibility. The planned cuts that dominated market consensus earlier this year, he says, are now considerably less likely to materialise.
What makes this energy shock distinctly different from past oil spikes, in Paul’s view, is its breadth. The near-closure of the Strait of Hormuz is not just an energy supply problem. It threatens fertiliser flows, helium supplies, and a range of other commodity streams that touch different parts of the global economy. Treating this through the narrow lens of previous oil shocks, he warns, risks badly underestimating the total impact.
1% higher inflation for Europe; long-term investment case for India still intact
For Europe, the macro arithmetic is stark: roughly 1% higher inflation and 0.5% lower growth are plausible outcomes for 2026 if current energy pricing holds. For India, the exposure is real but more nuanced. Oil and gas imports create direct vulnerability. Export flows to the Middle East and remittance income add further sensitivity. Yet Paul makes a point of separating the macro concern from the micro opportunity. He argues that some Indian assets — financials in particular — may have been oversold in the current fear environment, and that the structural long-term investment case for India remains intact.
“Some of the arguments to invest in a country like India are structural in nature,” he said, suggesting this could be a moment for long-horizon investors to step back in selectively, even as near-term uncertainty persists.For now, BlackRock’s message is one of disciplined neutrality: protect against downside, stay ready to pivot, and resist the temptation to call a resolution in a conflict where the duration remains the single most important — and most unknowable — variable.