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BlackRock Prepares For Persistent Inflation And Extended Market Volatility

John Galt

Updated: July 18, 2022

wild ride 2023
Editor’s Note:

EDITOR'S NOTE: In contrast to Bank of America’s outlook, which forecasts the end of inflation’s rise with a 1.4% drop in US GDP and a mild recession, BlackRock sees a different picture. They see persistent inflation and extended market volatility, and they’re telling their clients to brace for this long and drawn-out period. The world’s biggest asset management firm said “we are braving a new world of heightened macro volatility.” The “Great Moderation” which fueled the longest US bull market in history, is now over. Let’s take a step back. BlackRock and Bank of America are viewing the same data, yet their forecasts are worlds apart. Think about that for a moment. What do both see in the same data that’s causing both institutions to present outlooks that are fundamentally incompatible with one another? We urge you to read both articles to see what exactly is being interpreted so differently that a pessimistic outlook for one (BofA) transforms into a near-permanent dismality for another (BlackRock). 

  • BlackRock, in its mid-year outlook statement, said that it is now bracing for a period of extended volatility.
  • The asset manager said it was now underweight U.S., European and UK equities given its worsening economic outlook
  • Hyper-politicisation, they argue, is also leading to a proliferation of simplified arguments and “poorer policy solutions.”

The world’s biggest asset manager BlackRock said the era of steady growth and inflation was over as it revealed it had slashed its exposure to developed market equities and was bracing for extended period of volatility.

In its mid-year outlook statement yesterday, the investor said it was now bracing for a “persistent inflation amid sharp and short swings in economic activity” after a fundamental reshaping of the global macroeconomic environment.

“The Great Moderation, a period of steady growth and inflation, is over, in our view,” BlackRock Vice Chairman Philipp Hildebrand and his team said.

“Instead, we are braving a new world of heightened macro volatility – and higher risk premia for both bonds and equities.”

BlackRock said it was now underweight U.S., European and UK equities given its worsening economic outlook, while holding onto neutral position in Japanese, Chinese and emerging market stocks.

Investors should no longer expect both equities and fixed income to rally in tandem as has been the case over the last 20 years, BlackRock strategists said.

The firm added that central banks are rushing to raise rates to contain inflation that is “rooted in production constraints”, stemming from a massive shift in spending and labour shortages.

Hyper-politicisation, they argue, is also leading to a proliferation of simplified arguments and “poorer policy solutions”. 

“We think we will be living with inflation,” BlackRock said. “For all the noise about containing inflation, we see policymakers ultimately living with some of it.”

By City AM

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Originally published on Oil Price.

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