The world’s largest investment manager is avoiding the stock market and warning investors to do the same.
Strategists at BlackRock’s (BLK) Investment Institute said in a note published Monday that the firm was shunning “most stocks” as monetary policymakers underestimate the severity of a potential recession that could ensue from aggressive rate hikes.
“Many central banks, like the Fed, are still solely focused on pressure to quickly get core inflation back to 2% without fully acknowledging how much economic pain it will take in a world shaped by production constraints,” a team led by Jean Boivin wrote in the note. “We’re tactically underweight developed market stocks and prefer credit.”
BlackRock’s message comes amid a brutal rout in equity markets that has all three major averages in bear market territory. As of Tuesday’s close, the benchmark S&P 500 was roughly 24% below its January all-time high, while the Dow was down about 21% over the same period. The technology-heavy Nasdaq has plunged 33% since peaking in November 2021.
A brutal streak of selling that has deepened losses across stocks came after Federal Reserve officials raised interest rates by 75 basis points for a third straight time last week. Chair Jerome Powell said in remarks that officials were ready to weather an economic downturn in exchange for restoring price stability.
Central banks around the world have also proceeded with combative rate increases in efforts to mitigate global inflation that has climbed at the fastest pace in decades.
BlackRock strategists argue that recent inflationary pressures have been triggered by a structural shift in spending from services to goods as well as production constraints caused by the pandemic, war in Ukraine, and China’s COVID lockdowns — issues that cannot be resolved with monetary policy intervention.
“Central banks can’t fix these constraints, in our view, hence a brutal trade-off: trigger a deep recession by hiking rates or live with more persistent inflation,” the note said. “The Fed’s forecasts don’t acknowledge this trade-off.”
BlackRock's assets under management topped $10 trillion late last year, making it the largest asset management firm in the world.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc