Several Wall Street analysts say the upcoming earnings season should be a positive catalyst that could stop the stock market sell-off, which now has taken the S&P 500, Dow and Nasdaq into corrections — down more than 10 percent from their highs. Earnings are expected to grow by about 18.5 percent in the second quarter, according to Thomson Reuters.
Turnill said the BlackRock strategists are mostly negative on government bonds but do find short-maturity Treasurys offering a better return. "For the first time in many years you have a safe haven that's actually promising you some return," he said of the U.S. 2-year note. The 2-year Monday was yielding 2.23 percent, compared with the 2.73 percent yield on the 10-year note.
They are also neutral on credit, amid tight spreads and increasing market sensitivity to rising rates.
U.S. stocks sold off sharply again Monday, with the S&P declining 2.2 percent, in part on fears about trade wars.
"Our view continues to be that we'll see a positive outcome on global trade. We will not see a global trade war," Turnill said. China retaliated with tariffs on U.S. goods, after the U.S. imposed tariffs on steel and aluminum.
"Neither side would benefit from a trade war. Our base case is a positive one but risks are certainly increasing," he said. "We're watching carefully for any acceleration or escalation. ... You could bring them into line by the U.S. increasing its trade barriers or you could bring them into line with China and others reducing their trade barriers." He said the market has begun to prefer the latter.
In their outlook, the strategists said the U.S. tax changes come at a time when the economy was already growing, adding uncertainty to the outlook and also the risk of overheating.
"The U.S. is starting to take global leadership again. We still think there's room to run that's a very different environment than we saw last year," he said.
The strategists see tax cuts and fiscal spending adding about 1 percentage point to growth this year, but they caution that faster growth could act to short circuit the expansion if it does not come with productivity improvements.
"I think you're seeing for the first time people are starting to question whether trend growth could be slightly higher than they have seen in the last few years, even before the fiscal boost ... and then the fiscal boost amplifying that," he said. "Our base case is still steady, above trend growth globally."
Increased capital spending and productivity gains from technology investment could boost growth over time, helping to limit any overheating.
The strategists also see inflation picking up, and that should keep the Fed on track to raise interest rates.
Turnill said four hikes are possible this year and the market has already made much of the adjustment.
"Our view continue to be the path for bond yields from here is a smooth one," he said. "That gradual increase is important. The market can withstand gradual increases in Treasury yields which are associated with robust and ongoing growth."