The global economy has emerged from an era of stable growth and inflation over four decades, to enter a period of increasing instability, while the new system that weakens predictability is here to stay, according to what the world’s largest asset manager sees.
Recession is approaching around the world as central banks aggressively boost borrowing costs to tame inflation, BlackRock said, noting that this time around, more market turbulence will flare up than ever before.
This means that policymakers will not be able to prop up markets, as they have during previous recessions, wrote a team of BlackRock strategists led by Vice Chairman Philipp Hildebrand in a report titled Global Outlook 2023.
They said: “Recession is predicted as central banks race to try to tame inflation. Unlike previous recessions, central bankers will not come to the rescue when growth slows in this new system, contrary to what investors expect.”
“Stock valuations do not reflect the damage to come,” they added.
The prospect of limited policy support means that investors need a more dynamic approach, involving more frequent portfolio changes and taking “a more detailed view of sectors, regions and asset subclasses, to navigate the volatility ahead,” according to BlackRock.
bigger fluctuations
What worked in the past won’t work now, the strategists said, and the old guideline of buying the bottoms doesn’t apply to this system of sharper trade-offs and macroeconomic swings.
And they continued, “We do not see a return to the conditions that will maintain a common bull market in stocks and bonds, as we witnessed in the previous decade.”
I warned Wall Street banks From Morgan Stanley and Bank of America to Deutsche Bank, US stocks might drop more than 20% in 2023, due to the economic downturn and liquidity risks fueled by the Federal Reserve’s interest rate hike.
David Solomon, chief executive of Goldman Sachs, thinks there is only a 35% chance that the US economy will avoid a recession.
signs of recession
A slowdown in the housing market, delays in corporate investment plans, declining consumer savings and deteriorating CEO confidence are early signs of the next recession, according to BlackRock.
However, experts said the stock market has not yet factored in the potential scale of the impending economic downturn, Business Insider reported.
They added, “We don’t think equities are fully pricing in the recession… Corporate earnings expectations have not yet fully reflected a modest recession.”
The S&P 500 index of large US stocks rose more than 12% from its lowest level in 23 months reached in October, mainly driven by expectations that the Federal Reserve will slow the pace of interest rate increases following the recent decline in inflation.
