BlackRock has changed its outlook on the equity market, despite the Federal Reserve tightening cycle and slowdowns in China. The asset manager on Monday downgraded developed market equities to a neutral rating from overweight as central banks look to combat rising inflation. BlackRock has an estimated $9.6 trillion of assets according to its first quarter earnings release. Jean Boivin from BlackRock Investment Institute stated that “The Federal Reserve has signaled it is focused on taming inflation without flagging any economic cost this will entail.” We don’t believe there is a basis for sustained gains in risk assets as long as it remains true and the markets accept this. A downturn in China, which is “starting rival” 2020’s slowdown in China will likely cause aftershocks to the global economy. Boivin said that he thinks this will slow down growth in the major economies, and push up DM inflation at an inopportune point when high inflation has been more consistent. BlackRock has downgraded U.S. stocks as markets attempt to recover from ongoing sell-offs in which the Dow Jones Industrial Average suffered its worst eight-week loss since 1923, and the Nasdaq composite fell deeper into bear market territory. Although BlackRock did not downgrade U.S. stocks in the end, Boivin suggested that a Fed shift could encourage the asset manager back to equities. BlackRock said that in this climate, it would prefer to carry short-term government bonds. It is also underweighted on U.S. Treasurys. Boivin stated that stocks fell to new lows in 2022 because they were concerned about steep rises in interest rates triggering a slowdown. We see a better picture but it may take months before this becomes clear.
