Fed, recession, new ETFs: BlackRock roundtable key takeaways

Yahoo Finance's Allie Canal and Josh Schafer discuss BlackRock's media roundtable event, including the possibility of a recession, Fed funds rate, and the company's two new ETFs.

Video transcript

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AKIKO FUJITA: BlackRock unveiling two new active ETFs at their media roundtable event earlier today. The new ticker is BINC for a flexible income ETF and BLCV for a large cap value ETF-- helps strengthen BlackRock's expanded investment platform. Yahoo Finance's Allie Canal and Josh Schafer were at the event and joins us for their takes. Allie, let's start with you.

ALLIE CANAL: Well, the thing that stuck out to me Akiko is that a recession is not necessarily guaranteed especially a deep recession. We heard from Rick Rieder. He's BlackRock's Chief Investment Officer of Global Fixed Income.

He said the fact that we have unemployment so low, 3.4%, wages are strong, the housing market is recovering, we have really strong homebuilder data, we're seeing improvements on the residential side, strong CapEx that's all boding well for the current economic environment. And he's pretty optimistic that we might not see a recession. And from an investor perspective, that's something that is really encouraging. And therefore, they are encouraging those clients to get in the game.

JOSH SCHAFER: Well, it's interesting to what Rieder was saying when then you relate that to Fed policy and what we're seeing with Fed markets. So they're in the camp that they think that there's going to be a pause in June. And they're in the higher for longer camp.

And they think that's what Powell is sort of signaling here that there's going to be-- rates are going to stay at the same rate for a while. They don't see rate cuts in 2023. They see steep rate cuts coming in 2024.

And that's actually moves we've seen in the market as well. When you take a look at the projections from the CME group, it has now come down. There was a lot of rate cuts initially projected at the end of this year. Those projections have started to come down.

And that sort of comes in line with when we're talking about the recession. If we were going to go into a deep, deep recession, it was going to be aggressive, you would then probably think maybe the Fed does cut and the Fed cuts earlier. So they're sort of in line there with saying they don't see a deep recession. And they think that means that the Fed can keep those interest rates higher and what those interest rates sort of go to work, if you will, Seana.

SEANA SMITH: That higher for longer periods. So how is this then playing into their strategy given the fact that they see this potentially higher for longer interest rate environment, still a lot of uncertainty though about exactly what the economy is going to look like. So, what does that mean for their funding positions?

JOSH SCHAFER: Yeah, so obviously, when you talk about large cap value, that means that they're going to be playing for some kind of slowdown. They're still looking at those kinds of sectors that you'd look at when it comes to a slowdown. But I thought it was interesting they pointed out to say consumer staples, utilities, health care, those are classic plays that you might look for in a recessionary environment.

But they say consumer staples are essentially priced too high right now. They're already priced in, if you will. People have already bought those stocks. You've kind of seen that play out when you look at earnings too, look at like a Proctor and Gamble off over the last month since reporting earnings.

But then you spin that forward into something like health care, Allie, and I thought it was interesting what they pointed out with health care there. They sort of see value there because people haven't quite bought yet. And they think that could be a recession plan sometime.

ALLIE CANAL: Yeah, they said health care was cheaper and also really resilient during these times. They made some interesting comments too about growth versus value-- a global financial crisis value performed very well and outperformed growth. But then when we have this period of ultra low interest rates, we saw growth outpace value. And now that those interest rates have come back up, they're predicting that value is going to be really strong, especially in relation to growth.

AKIKO FUJITA: Allie Canal and Josh Schafer, thanks so much for that.