The world's largest investment fund BlackRock (BLK.US), with nearly $8 trillion under management, has shared its predictions for the stock market and the health of the economy in 2023:
- According to the fund, stock valuations are still high and do not fully reflect the recession that awaits the economy. According to BlackRock, current earnings expectations do not yet fully reflect even a moderate recession;
- According to BlackRock, the world is facing a recession because the restrictive policies of central banks will cause more problems for economies than they have had in the past;
- Among other risks, the fund cited the real estate crisis, limited corporate investment, a progressive decline in Americans' savings and negative sentiment among company boards;
- According to analysts, the era of four decades of stable growth and limited inflation is coming to an end, and the world has entered a period of heightened volatility, the end of which is not even visible on the horizon yet.
Strators led by BlackRock vice chairman and former SNB chief Philip Hildebrand believe that central banks will no longer be able to conduct financial market-friendly policies to the same extent as during past recessions:
"A recession is looming as central banks race to try to tame inflation. This is the opposite of the recessions seen in the past (...) Central bankers will not move to the rescue, although investors expect them to. Stock valuations do not yet reflect the potential damage."
According to BlackRock, the prospect of a lack of decisive support from central banks means that investors should change their strategy by changing their portfolios more frequently and carefully analyzing the sectors and business models of companies to cope in a weaker period for the stock market. The fund reported that the old methods of 'buying dips' may not be of significant use in the coming period;
Other major Wall Street banks like Morgan Stanley and Bank of America have also warned that U.S. stocks could come under pressure in 2023 due to a slowdown driven by the effect of high interest rates. Goldman Sachs CEO David Solomon indicated only a 35% chance that the U.S. would avoid a recession.
BlackRock policy controversy
BlackRock's fund, as one of the world's largest initiators in the Environment and Corporate Governance investing has recently come under fire for its significant investments in companies operating in the fossil fuel market. According to hedge fund Bluebell Capital, which owns a stake in BlackRock, the ESG strategy has not been in line with the fund's real actions and has attracted criticism that undermines BlackRock's independent decision-making as a fund that manages assets in the best interests of clients. The fund has not stopped investing in fossil fuels by which CEO and co-founder of the fund's huge success Laurence Fink has faced unprecedented criticism. The fund has been critical of Bluebell's allegations. In the past, BlackRock has argued acquiring stakes in companies operating in 'non-collegiate' areas of business as one tool to influence the transformation of their businesses in a 'green direction'. Over the summer, 19 U.S. state prosecutors accused L.Fink and BlackRock of breaching their fiduciary duties and sacrificing shareholder profits to advance a zero-carbon agenda. Last week, the state of Florida announced that it would withdraw $2 billion from BlackRock's state pension funds.
Weakness in the stock market is definitely not to BlackRock's liking, which can expect lower client inflows, cash outflows and a decline in the value of its investment portfolio during downturns. In Q3, the fund sold off Apple and Alphabet stocks, among others. The largest part of the fund's portfolio, despite declines in 2022, is still technology stocks (nearly 24%). The portfolio reduction in Q3 was not very significant, the fund got rid of 0.82% of Apple (AAPL.US) shares and 2.14% of Alphabet (GOOGL.US) shares held. BlackRock also reduced its position on oil giant, Chevron Corp (CVX.US) by 4.99%. Instead, it bought 5.75 million Tesla (TSLA.US) shares (a 3.46% increase in its holdings).
The Sharpe ratio for BlackRock shows that the returns achieved by the fund are definitely beating the average hedge fund average which can still drive clients giving the fund money to manage. Source: HedgeFollow
BlackRock (BLK.US) shares, W1 interval. The sell-off in BlackRock shares stopped at the 71.6 Fibonacci retracement of this uptrend started in March 2020, which runs around $500. From this level there was a dynamic rebound. However, the bulls were unable to overcome resistance in the form of the 100-day moving average (black line) and the stock is again under selling pressure, slipping below the 38.2 Fibo elimination at $725 per share. Source: xStation5
