Larry Fink, BlackRock’s CEO, believes that the lows we saw in December may be the bottom, for now at least. He sees the current rebound as a vote of confidence.
With the relative market uncertainty that we experienced in 2018, and in particular, during the last quarter of 2018, anything that may restore confidence to the market is welcome news indeed for investors.
In an interview with CNBC, BlackRock’s Larry Fink shared that he feels that the lows of late December are probably a bottom, at least for now.
Fink is a co-founder and chief executive of the world’s largest asset management firm, with about $6 trillion under their control. In comparison, given that the entire U.S. stock market is valued at about $30 trillion, BlackRock controls a very big piece of the pie indeed.
With this much money at stake, things such as whether we’re in for a bigger dip than we saw in the latter half of last year or not matters a great deal. We do need to realize that fund companies such as BlackRock are married to the bull side of the market for the most part, so we may have to take bullish remarks from their leaders with a grain of salt at least.
One thing that is beyond dispute is the way that the numbers are speaking to us over the past three weeks. This is not that long of a time to be off a market’s lows, but in this particular case it’s not the amount of time that has passed since Christmas, it’s the bold way that we’ve come back, erasing more than half of the deficit of the prior three months, the alleged big bear move.
Bear moves need to be sustained though to qualify as consisting of a genuine bear market and not just a correction, and so far, this one looks more like a correction than a reversal of the 10 -year bull market we have enjoyed and are still, by many accounts, in the midst of.
In spite of his positive prognostication, suggesting that the bear market that many still fear is probably not upon us, at least yet, Fink did show some concerns about the current state of the markets, ones shared by many.
Fink Also Shares His Concerns with Us
Among the issues that concern Fink and BlackRock are the trade issues between the U.S. and China, the U.S. government shutdown, and the Brexit issue. The Brexit problem, at least in its present form, does not seem to worry the markets very much, and the markets have moved forward nicely during the shutdown, so that’s not doing very much either.
Still though, the shutdown issue may still be weighing things down. This cannot last forever though and we will see what effect this is really having once it is over. Markets aren’t going to see this as anything more than a temporary thorn though.
Few people, if anyone, would dispute the fact that the worry over trade with China has the potential to affect markets in very meaningful ways. This is a giant issue with much at stake not only for financial markets but for the country and the economy as a whole to pass this off as not that meaningful.
As this issue has festered, markets have no doubt seen a contracting effect from it, even though the sum of all market influencers may have us still plodding along, albeit much more slowly. Fink sees this as a limiting factor to market growth, and not without good reason.
Nothing is Bigger to Markets than Interest Rates
On an issue with even more effect on markets, Fink points to the seeming reluctance of the Fed to raise interest rates in the near term, and feels that this pulling back is appropriate given the mixed data that we have on inflation.
It is felt that the forbearing attitude of the Fed caused or at least influenced the recovery that we’ve seen thus far in 2019. There are a lot of things that move markets, and interest rate hikes are just one of them, but this is a big one indeed and has the power to move markets significantly all by itself.
Having to pay more to borrow money is not a pro-business situation, and when you own stocks in companies whose costs of doing business go up, this does not bode well for your business’ fundamentals. A lot of buying and selling of stocks are very much influenced by such things.
The Fed did raise the rate in mid-December though and while the feeling was that this should be enough for now, they do project two more hikes in 2019. The hope though is that this will be delayed as the Fed gathers more data, at least to allow the market to recover enough to be able to withstand the shocks of these upcoming hikes while controlling the magnitude of the dips that may follow.
Fink does have a positive view of the near term overall, and he characterizes the good start of 2019 to investors putting money back to work. New inflows to the market during pullbacks are a great idea as long as what we are seeing is indeed a pullback, and institutions love to buy during these dips.
When they do, and they are doing this presently, this does bode well for the fact that we may indeed have seen the bottom, as Fink supposes. When this view comes directly from the head of the largest institutional money management firm in the world, this brings even more hope with it.