Why Blackrock expects lower share prices ahead
American multi-national investment company Blackrock (NYSE: BLK) is the world’s largest asset manager. And in a bulletin release yesterday, the company came out as bearish on prices for stocks and shares in developed markets.
And that means the firm is cold on UK and US shares, among other countries. Is that something investors should worry about? And does Blackrock’s bearishness suggest bigger declines ahead for shares?
No banking crisis likely
Let’s dig in a bit to what the asset manager said. And to begin with, it doesn’t think the market gyrations of the past week are rooted in a banking crisis. So that’s a relief.
But the fastest interest rate rises since the 1980s are causing financial cracks. And markets have “woken up” to the damage caused by that approach. In other words, share prices are beginning to price in a recession or general economic decline.
Blackrock thinks the stock market has been over-enthusiastic in its expectations that central banks will cut interest rates soon. Instead, it expects major central banks to keep hiking rates in their meetings in coming days to try to rein in persistent inflation. And that’s despite the pain the tactic is causing in economies, stock markets and the financial and banking sector.
But it’s not all bad news. The recent market and bank convulsions represent a tightening of financial conditions. And that should curb bank lending, with the scenario likely doing some of the tightening work for central banks.
And that’s a good thing because it could result in interest rates peaking at lower levels than they otherwise would have.
Poised to pounce on value
However, Blackrock is looking for its investments right now in short-term government bonds. And it also prefers stocks and shares in emerging markets over those in developed markets.
But the firm “stands ready” to seize stock opportunities in developed markets such as the UK and the US “as the damage of rate hikes becomes priced in”.
And my reading is that the company is looking for good-value stock opportunities. So, as ever, we are in a stock-picker’s market. And that suggests investors can score an advantage by working hard on thorough research of the businesses that interest them.
For me, that means working hard on my watchlist of potential candidates for my portfolio. And it also means carrying on with my regular monthly investments into index tracker funds, investment trusts and certain selected managed funds.
Nobody knows for sure whether or not we’ll see any further general stock market weakness in the immediate future. But my approach involves ignoring the moves of the overall market and focusing on the news and opportunities flowing from the stocks on my watchlist.
So if I see good value, I’ll likely buy shares regardless of opinions from commentators such as Blackrock, or anyone else. And in that approach, I’m aiming to copy the tactics of famous and successful investors such as billionaire Warren Buffett.
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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023