The world’s biggest asset manager says a recession is coming, adding yet another prediction to a growing bucket of forecasts.
Strategists at BlackRock, Inc., a New York-based multi-national investment company, said that as central banks hike borrowing costs to tamp down inflation, market turbulence will ensue.
"Recession is foretold as central banks race to try to tame inflation. It's the opposite of past recessions," a team of strategists led by Vice Chairman Philipp Hildebrand wrote in their 2023 Global Outlook report. "Central bankers won't ride to the rescue when growth slows in this new regime, contrary to what investors have come to expect. Equity valuations don't yet reflect the damage ahead."
The BlackRock team said that four decades of stable growth have passed and that the world is currently in a phase of unpredictability, which will remain for the foreseeable future. To manage the volatility, investors will need to act more dynamically than they have in the past, which may involve more frequent portfolio changes and taking a more "granular view on sectors, regions, and sub-asset classes," the strategists wrote.
With sharper trade-offs and increased macro volatility, "[t]he old playbook of simply 'buying the dip' doesn't apply . . . We don't see a return to conditions that will sustain a joint bull market in stocks and bonds of the kind we experienced in the prior decade," the strategists went on to say.
Signs of an impending slump include delays in corporate investment plans, a housing market slowdown, a decline in consumers’ savings, and waning CEO confidence, according to the report.
The stock market, the strategists said, has not accounted for a potential downturn. "We don't think equities are fully priced for recession,” they wrote. “Corporate earnings expectations have yet to fully reflect even a modest recession. This keeps us tactically underweight developed market equities."