Investors had bet that Donald Trump's tax cut and infrastructure spending plans would light a fire under US economic growth and inflation, triggering a global rally in cyclical stocks and banks, while bonds and yield-sensitive stocks were dumped in anticipation of a faster rise in official interest rates.

But those hopes have been dashed in recent months, following growing doubts over Mr Trump's difficulties in getting his reforms through Congress and the latest political turmoil over alleged ties to Russia, as well as falls in commodity prices due to a slowdown in Chinese stimulus.

Despite the setbacks, latest data suggested economic growth and inflation were picking up in major industrialised countries, BlackRock head of investment strategy David Griffith said.

"Reflation is not just a US story any more and is benefiting company earnings globally," he said at a briefing in Sydney on Tuesday. "This recovery has a good few years in it yet."

Indeed, corporate earnings expectations have been revised higher in most major economies, and nowhere as steeply as in Japan, one of BlackRock's favourite sharemarkets.

The recovery is also flowing through to emerging markets, and among these in particular the Asian ones - another preferred region of the group's asset allocators.

But Mr Griffith said investors shouldn't expect another steep rally and might need to diversify more than in the past.

"Given high valuations across most major asset classes, investors potentially face lower returns from traditional balanced portfolios compared with the recent past," he said.

Signs of life in wages

BlackRock's growth optimism matches predictions by Credit Suisse, which in a recent note pointed out that while some of the enthusiasm over Mr Trump's policies might have waned (as measured in sentiment indicators or "soft data"), real, hard data was set to accelerate.

"We still believe that the five structural headwinds to global growth over the past four years are diminishing ??? fiscal tightening, the euro crisis, bank deleveraging, the decline in BRIC growth and the collapse in commodity prices ??? while we see US growth re-accelerating and euro area GDP growth accelerating to more than 2 per cent," the analysts wrote.

"The conditions appear in place for a passing of the baton from a commodity-driven inflation impulse, which has now largely passed, towards a less dramatic, but perhaps more sustained, wage-driven inflation impulse."

Lombard economist Charles Dumas agreed that an acceleration in US wages growth, a pick-up in German domestic data as well as a stabilisation in China's economy could fuel the next stage of the reflation trade.

"The three locomotives of global growth; US, China and Europe, are for the first time since the financial crisis, all contributing to global economic growth," he said. "The global reflation is alive and well, not least because it never did depend on Mr Trump."

However, while improved growth prospects suggested deflation was defeated (for now), bond yields weren't about to spike, Mr Griffith said, pointing out that interest rates were likely to remain at or near rock-bottom levels in most industrialised countries outside the US.

"In particular, we expect the Bank of Japan and the European Central Bank to keep rates very accommodative," he said.

The world's largest asset manager predicts the US Federal Reserve will hike rates at least twice more this year, starting in June.

Australia's reluctant consumers

That's in contrast to the Reserve Bank of Australia, which BlackRock expects to keep rates on hold well into 2018, and if anything, was more likely to cut rates.

"We remain cautious for the Australian economy notwithstanding an improved global outlook," said the company's head of Australian fixed income, Craig Vardy.

"Infrastructure spending and business investment will be extremely important economic drivers as dwelling investment turns down."

As some of the main risks to local growth, Mr Vardy cited a financially constrained consumer due to soft wages growth and rising mortgage costs, as well as a subdued labour market and a slowing housing sector.

Sluggish consumption is one of the reasons why BlackRock head of Australian fundamental equity Charles Lanchester avoids consumer retail stocks in the fund he manages.

Consumer retail stocks under pressure

"Consumer discretionary will continue to come under pressure," Mr Lanchester said.

"Not only as the consumer is squeezed with rising costs for existing staples such as electricity and healthcare but also for those that are highly geared ... the tick-up in mortgage rates will have an effect on discretionary spending."

The other big risk for the sector is the looming arrival of online retail giant Amazon in Australia.

Australians were usually early adopters of technology, as witnessed by the high usage of smartphones, but online retail penetration was still in its infancy in comparison to other markets ??? also because local retailers "had their head in the sand" until very recently, he said.

"(Amazon) will have a huge effect on retailers and retail landlords."