The world’s largest asset manager lowered its stock market forecast
BlackRock (BLK) cut its forecast for stocks amid growing economic uncertainty and persistent inflation.
Strategists at the BlackRock Investment Institute said Monday that the company has reduced its exposure to developed market stocks, citing aggressive intervention by central banks to tame high prices across the global economy.
“For now, we believe the Fed has cornered itself by responding to political pressures to rein in inflation,” strategists led by Jean Boivin said in a note published on Monday. “Ultimately, the damage to growth and jobs from fighting inflation will become apparent, in our view, and central banks will live with higher inflation.”
BlackRock’s assets under management exceeded $10 trillion late last year, making it the world’s largest asset manager.
In a similar comment last month, strategists at BlackRock argued that the US central bank’s drive to raise interest rates was on the verge of halting economic growth without necessarily resolving inflation pressures. The company said the high core inflation was driven by “unusually low production capacity in incomplete restarts after the pandemic” rather than increased demand.
As a result of its discounted view on stocks, BlackRock also said that traditional 60/40 equity portfolios, and “buy the dip” — or reflexive buying of stocks after a short-term dip — are no longer likely to be effective investment strategies. The company indicated that it boosted its allocation of investment grade credit along with reducing its equity stake.
“We are seeing a new era of volatile inflation and growth sweeping through a period of moderation,” the company said in a commentary on Monday. “We are downgrading the stock and raising the credit level in this new system.”
The revised downward forecast comes just over a week after stocks ended their biggest first-half drop in more than five decades.
The first six months of the year saw the S&P 500 enter a bear market, and this downturn has prompted other big-name Wall Street institutions to scale back the benchmark index’s target price.
Among the companies that lowered their stock forecasts was Credit Suisse, whose chief US equity strategist Jonathan Gollop lowered his year-end estimate for the S&P 500 index by 600 points to 4,300 in a note to clients on July 5. In the rest of 2022, the number represents a sharp turnaround from a research report released in December 2021 in which the bank raised its target for the US benchmark to 5,200 from 5,000, citing “strong” economic growth. The S&P 500 capped Friday’s trading session at 3,899.
Even the most bullish strategist on the street is less optimistic.
John Stoltzfus, chief investment analyst at Oppenheimer Asset Management, on Thursday lowered the year-end target price on the S&P 500 to 4800 from 5330. Before the change, Stoltzfus held the highest year-end price target on Wall Street strategists tracked by Yahoo Finance, They even repeated the call recently on June 21.
Meanwhile, Citigroup (C) strategist Scott Kronert said in a note to clients on Monday that he sees the S&P 500 index rising about 8% from current levels to end the year at 4,200.
“We have downgraded most developed market stocks to tactical shortfalls,” BlackRock said, attributing the rating downgrade to increased overall volatility as “central banks seem intent on reining in inflation by crushing growth.”
However, the institution reiterated that it preferred stocks over long-term bonds with higher yields and upward inflation trends.
“We think central banks will live with higher inflation, pause and then change course in terms of raising their prices – a boon for stocks,” said the strategists.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter Tweet embed
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