Blackrock Market Commentary

[Fearchar]

Blackrock market commentary is available nearly every week.

Here is this weeks:
Feb 21 2023 Seeking Income.pdf (342.83 KB)

They are overweight US short term bonds (bills) for income and capital preservation.
Trimmed exposure to credit after spreads tightened.
Overweight emerging market stocks compared to Developed Markets.
Cut agency mortgage-backed securities to neutral due to the spread tightening.

They expect further rate hikes by central banks.
They note that 2 year treasury yields are at a 15 year high.

The bond market is waking up to the risk the fed hikes rates higher and holds them for longer.

[steadyeddy]

Holding rates longer - yes I see that happening. Higher - no. One of the things the Fed is watching is financial conditions. If they tighten, they will simply hold off on rate hikes.

[Deleted]

I tend to agree that the FED will try desperately not to overdo it. What that means, exactly, I do not know. But, if inflation refuses to recede, I suspect that they will do what they feel that they have to. I am hoping that it doesn't get to that point.

[johntaylor]

Yep, and the problem is exacerbated by ongoing inflationary spending

[steadyeddy]

Feb 23, 2023 2:56:57 GMT @theycallmenobody said:

I tend to agree that the FED will try desperately not to overdo it. What that means, exactly, I do not know. But, if inflation refuses to recede, I suspect that they will do what they feel that they have to. I am hoping that it doesn't get to that point.

The Fed will soon be exposed to political pressure. 2024 is a presidential election year and NO ONE wants a recession - whether they can stop it or not is a different matter altogether.

So the Fed will tread very carefully in jacking up rates. Again we all should remember that just the rate hikes will not solve the sticky part of inflation, even though killing demand is easier than creating supply.

[marpro]

Interest rate hiking and keeping it longer may not do the trick this time because of the high employment and wage pressure. I just now read that there are two job openings for every unemployed person.

Layoffs but low unemployment: What is going on in this strange economy?

Only Tech. jobs are going away because their growth rate is very sensitive to interest rate. But, the general economy is doing fine. There was nobody to bring the carts back inside the store in Jewel-Osco yesterday. There were no carts inside the store, but plenty outside. You have to bring your cart inside. We had to wait for a while in Panera Bread for lunch, even though there was no crowd, because there were not enough workers.  By the way, the large eggs were on sale for $2.99/dozen. I had to wait for a while in the CVS store also because there were only two people both collecting and serving people in four different counters (one drive-in) yesterday. I have to make another trip to get my medicines today. Service industry is suffering.

[marpro]

Walmart, Home Depot raise wages.

finance.yahoo.com/news/as-walmart-home-depot-raise-wages-analyst-calls-it-no-brainer-for-long-term-value-204123193.html

As I said in my previous post, it is a very good job market, except for Tech. If everybody goes for Tech., who is there to do the other jobs? Let them return to grocery packing.

• Meanwhile at the end of January, U.S. retailer Walmart (WMT) announced plans to increase its average hourly pay to more than $17.50, making the range now $14 to $19 per hour.

Politicians (Rep. AOC or Senator Sanders) need not push anything now, as the free-market economy is doing its job great in the USA.

• In a statement to U.S. employees, Walmart U.S. CEO and president John Furner said the increase in pay was “to ensure we have attractive pay in the markets we operate.”

[Deleted]

it appears that there are still 375,000 more tech openings than people to fill them - headlines aside.

Tech not as shaky as it seems

Highly educated tech workers are not likely to start looking for lower paying service industry work any time soon. It will be a while before this all shakes out. Many tech jobs are very specific in their skill requirements and not necessarily interchangeable. Not all tech workers are created equal. Location may even play a bigger role as return-to-work requirements increase. 

It is likely that all the good paying jobs are the exact reason that WMT and HD are scrambling for workers. The recent thrust towards re-shoring and domestic manufacturing seems to be just gaining steam. Things are actually looking pretty good for middle class workers across many industries. Companies like HD and WMT may only be looking at the tip of the iceberg. 

[Fearchar]

Feb 27 2023.pdf (306.45 KB)

My take on the weekly commentary from BlackRock:

• Continue to prefer value stocks as interest rates climb.
• Recent slid in stock prices after FED preferred inflation gauge was persistent, reinforces why more hikes are ahead
• Tight labor market in euro area keeping inflation elevated

Growth stocks recent rally is likely to be short lived.
Typically value stock tank in recessions, but this recession is different as it has been telegraphed so well
that value companies have been able to be better prepared. 
Meanwhile, discount cash flow analysis with higher rates hurts growth stocks.

Still, they are looking for quality value as opposed to junk value.
Healthcare has become more of a value sector while retaining some growth.
Key is buying at the right price.

"We think structurally higher inflation, higher-for-longer interest rates and our expectation for a steeper yield curve all favor value. We find value in the
energy and financial sectors and focus on quality within these sectors. We also like healthcare but at a reasonable price."

Politics on inflation is likely to change near term..... outsize hikes will stop without inflation fully returning to the 2% target.
We will be living with slightly higher inflation than target in coming years.

[steadyeddy]

Thanks Fearchar for posting the latest BR commentary. The consumer is getting weaker. One anecdotal point: Our 2 recent visits to Target and Walmart over the past weekend, we saw much less traffic in the stores and the self checkout lanes. I think the consumer is suffering a lot. The Fed unlikely to jack up hikes to 50bps, they might continue 25bps a little longer.

[Fearchar]

BR March 6 2023.pdf (348.19 KB)

Attached is Black Rock's market commentary from Monday.

• They note that improving euro area activity signals more rate hikes to come.
• Therefore, they prefer short-term government bonds, high quality credit and select equity
• US manufacturing activity was also strong; more reason's hikes for longer 
• They don't believe European stocks will continue to outperform
• Key reason is inflation will likely prove to be sticky
• Underweight European stocks but like the financial, energy, healthcare and consumer discretionary sectors

Short-Term Bonds!!!!

[Fearchar]

March 13 2023.pdf (312.58 KB)

Attached is BlackRocks latest Weekly commentary.
Here are my summary points from their commentary:

• Stocks are starting to reflect the economic damage of rate hikes
• Earning are still too rosy (expect bad news later on)
• The FED has made it clear they are poised to hold rates higher for longer
• Short Term Gov't Bonds recommended for Income
• Emerging Market (EM) equities recommended over Developed Market
• We are not in a typical economic cycle
• Tight labor markets are driving persistently higher inflation
• Expect a recession to hit sales and higher cost to pinch margins
• They prefer the energy sector as tight supply buoys prices
• Also like Healthcare for defensive characteristics
• US market is too exposed to Tech and consumer discretionary

Week Ahead:
March 14  US CPI inflation
March 16  ECB policy decision
March 17  U of Michigan consumer sentiment survey

 

[richardsok]

Nobody -- I believe every word you post, and yet I keep reading persistent contrary reports that qualified workers are very difficult to find. (One of my sources is anecdotal from my daughter who is in HR.) Which viewpoints seems more realistic? Previously, I have been inclined to believe the the ubiquitous geezer shelves stockers are more a product of (a) inflation and (b) inadequate retirement savings than a dearth of employment opptys. But what do I know?

Fearless -- greatly appreciate these weekly Blackrock commentaries. Thank you.

[FD1000]

For 2-33 months I keep hearing most analysts say: energy+HC+value are the best, tech is too expensive but so far, the market says the opposite.
YTD QQQ=+9.17%...XLV=-(7.76)...the difference is "only" 16.9%.
BTW, XLE=-(7.45%)...VTV(Value)=-(4.7%).

Attachments:

[Fearchar]

Mar 14, 2023 3:40:13 GMT FD1000 said:

For 2-33 months I keep hearing most analysts say: energy+HC+value are the best, tech is too expensive but so far, the market says the opposite.
YTD QQQ=+9.17%...XLV=-(7.76)...the difference is "only" 16.9%.
BTW, XLE=-(7.45%)...VTV(Value)=-(4.7%).

This is the difference between fundamental and technical analysis.

In an analysis of fundamentals, lower prices are better prices. Buy low!

Technical analysis says go with the flow ( or something like that). Buy high!

[habsui]

Yes, but what is the market telling you right now?

[oldskeet]

habsui ,. Hello.  Answering your question.  For me, it is more important as to what my asset allocation is telling me?  With this, I have been an equity buyer down in the 3800 range for the S-P500 Index during this pullback as I feel things will, in time, get fixed and I currently have an open to buy in my equity allocation.  Plus, my Barometer reflects that the Index is currently a buy, being oversold, based upon it's metrics.  So, I have been nibbling.

Now what you should do is something else?  If you listen to every talking head ... In time, you'll go nuts.  My best thoughts are develop an investment system and plan ... and, then follow it.  Then the answers sought from the "Where to Now?" and "What to Do?" comes pretty easily.

[FD1000]

Mar 14, 2023 6:03:02 GMT Fearchar said:

Mar 14, 2023 3:40:13 GMT FD1000 said:

For 2-33 months I keep hearing most analysts say: energy+HC+value are the best, tech is too expensive but so far, the market says the opposite.
YTD QQQ=+9.17%...XLV=-(7.76)...the difference is "only" 16.9%.
BTW, XLE=-(7.45%)...VTV(Value)=-(4.7%).

This is the difference between fundamental and technical analysis.

In an analysis of fundamentals, lower prices are better prices. Buy low!

Technical analysis says go with the flow ( or something like that). Buy high!

The market tells you what to buy doesn't mean high, it means just that, that more buyers decided what to do.
If you buy low, you would buy EM for 10 years instead of buying US LC tilting growth during 2010-2021. That also means buying SP500 (where it lost money) during 2000-2010, instead US LC value, SC, international.  The market is always right, no need to guess.

The above doesn't mean, you should chase hot stocks, I'm talking about wide range categories stock ETF/funds.
BTW, the SP500, one of the best indexes for LT investors is based on the price. The higher price of a company goes up, no matter the reason, the higher % of the total index is invested in that company. 

[Fearchar]

FD1000,

Thanks; but I'm really not interested in entertaining straw man arguments.

[yakers]

I have little interest for TA, it may be a useful approach to tracking momentum for traders but I am a long term investor so fundamentals are pretty much what i consider. The only momentum element I look at occasionally is the 200MA an that is because I have to decide what to sell for my RMDs/QCDs and occasional TLH in investment account.
.
Several years ago I did an experimental trading account and it was a bit of both fun and a lot of effort. I did beat the S&P500 but not by a lot and it would be a ot of work to do more of it. I have confidence in knowing when to buy but not so good at when to sell. A trader has to know when to sell and everyone should consider how to manage tax impacts.

[Fearchar]

The longer one holds (owns) equity the less relevant the entry point.

My Mom has owned SPGI for 50 years.
Take a look at the chart for that!

I have owned my oldest shares of BRK in a taxable account for about 12 years. Huge gains without any taxes paid during that time.

While tempting, the active tradeing approach is very difficult and probably inpraticle in taxable accounts.

It is the IRA that has lead so many down the active trading path.

[FD1000]

Mar 16, 2023 1:46:24 GMT Fearchar said:

FD1000 ,

Thanks; but I'm really not interested in entertaining straw man arguments.

No straw argument, I practice what I posted in all account including the taxable account. In retirement it's more important for me not to lose than making more money. I'm in the higher risk age which for me is until age 75. After that I will decide what to do. Most of my trades in taxable are in HY munis. If I want to take more risk(stock ETF/Funds + CEF) it's all in IRAs. My taxable is only 20% of my portfolio.

You are correct, if you don't believe in trading and/or it doesn't work for you, don't do it, but it works for me. Most investors should hardly trade, but they still do. Longer hold doesn't guarantee better results. The SP500 guarantees you market performance less a small ER.(Aka Bogle, Buffett). So, either trading is always bad or it may works for some which is basically what Buffett says.  

[Fearchar]

2023.03.20 Financial Cracks Show.pdf (314.85 KB)

My take on Weekly Commentary from BlackRock:

• European Central Bank hike 0.5% last week
• Expect FED rate hike this week
• Banking problems will further crimp lending practices
• Re-iterated belief in of an impending recession
• Central Banks will not come to the rescue since they are causing it
• Will use other means to ensure a degree of financial stability
• Recommend remaining underweight equities
• Recommend remaining over weight short term (<1 year) Gov't Bonds
• Trimmed Credit to neutral
• Do not foresee a repeat of 2008 crisis
• The sharp drop in 2 year T-Bill may reverse course (which is why they are recommending even shorter duration Gov't debt)
• Prefer emerging market assets
• Overweight EM local currency debt

I suspect they are dismissive of the recent turn around in the FED funds futures market.


Shadow Policy Rate = Cost of borrowing while factoring inflation

• From 2008 to 2019 Shadow Rate averaged -3%
• Project Shadow rate of around 2.5% by this summer
• This will make for most restrictive policy since mid 80's (when considered with 20 year downward trend)
• this is the cost of getting inflation down quickly

Bank of England has policy announcement on March 23.
They may pause.

[Fearchar]

2023.03.27 Recession - but no central bank....pdf (635.19 KB)

Recession - but no central bank rescue

• Crushing economic activity vs living with persistent inflation
  
• Fastest hikes since 1980
  
• Monetary policy separated from Bank turmoil (in contrast to 2008)
  
• New Phase in inflation fight coming
  
• Don't see FED coming to the rescue (that's the old playbook)
  
• FED is forecasting recession this year but no cuts
  
• Believe inflation will prove more resistant than even FED expects 
• If recession is mild, then inflation will be more persistent than otherwise
• Blackrock is even more over weight inflation protected bonds +2
  
• Also prefer very short term bonds +2
  

[steadyeddy]

Mar 27, 2023 23:46:26 GMT Fearchar said:

View Attachment

Recession - but no central bank rescue

• Crushing economic activity vs living with persistent inflation
  
• Fastest hikes since 1980
  
• Monetary policy separated from Bank turmoil (in contrast to 2008)
  
• New Phase in inflation fight coming
  
• Don't see FED coming to the rescue (that's the old playbook)
  
• FED is forecasting recession this year but no cuts
  
• Believe inflation will prove more resistant than even FED expects 
• If recession is mild, then inflation will be more persistent than otherwise
• Blackrock is even more over weight inflation protected bonds +2
  
• Also prefer very short term bonds +2
  

I call BS on no central bank rescue. 

[Fearchar]

Mar 28, 2023 0:22:26 GMT steadyeddy said:

Mar 27, 2023 23:46:26 GMT Fearchar said:

View Attachment

Recession - but no central bank rescue

• Crushing economic activity vs living with persistent inflation
  
• Fastest hikes since 1980
  
• Monetary policy separated from Bank turmoil (in contrast to 2008)
  
• New Phase in inflation fight coming
  
• Don't see FED coming to the rescue (that's the old playbook)
  
• FED is forecasting recession this year but no cuts
  
• Believe inflation will prove more resistant than even FED expects 
• If recession is mild, then inflation will be more persistent than otherwise
• Blackrock is even more over weight inflation protected bonds +2
  
• Also prefer very short term bonds +2
  

I call BS on no central bank rescue. 

I believe Blackrock is drawing a distinction between bank rescues and rescuing the rest of the economy. 
Agree the FED has already shown a willingness to quickly rescue banks.
However, I believe the Blackrock position is that they don't believe the FED will be cutting rates very quickly.
The more mild the recession, the longer they see the FED holding rates to get inflation well under control

 

[newtecher]

Mar 27, 2023 23:46:26 GMT Fearchar said:

View Attachment

Recession - but no central bank rescue

• Crushing economic activity vs living with persistent inflation
  
• Fastest hikes since 1980
  
• Monetary policy separated from Bank turmoil (in contrast to 2008)
  
• New Phase in inflation fight coming
  
• Don't see FED coming to the rescue (that's the old playbook)
  
• FED is forecasting recession this year but no cuts
  
• Believe inflation will prove more resistant than even FED expects 
• If recession is mild, then inflation will be more persistent than otherwise
• Blackrock is even more over weight inflation protected bonds +2
  
• Also prefer very short term bonds +2
  

It looks like they are calling for a repeat of 1973-75 recession, when both inflation and long treasury yield increased. I think this scenario is unlikely but possible. After all, the 1973 recession began with the tripling of oil prices, which was a large exogenous shock to the economy. Without a similar shock (e.g., China invading Taiwan), a more standard recession with falling inflation and falling treasury yields is much more likely.



There is an obvious winning investment in this case: long-dated TIPS, which would shoot up like a rocket. Instead they seem to recommend short-term TIPS and cash. Bizarre.

[Fearchar]

Mar 28, 2023 1:54:10 GMT newtecher said:

Mar 27, 2023 23:46:26 GMT Fearchar said:

View Attachment

Recession - but no central bank rescue

• Crushing economic activity vs living with persistent inflation
  
• Fastest hikes since 1980
  
• Monetary policy separated from Bank turmoil (in contrast to 2008)
  
• New Phase in inflation fight coming
  
• Don't see FED coming to the rescue (that's the old playbook)
  
• FED is forecasting recession this year but no cuts
  
• Believe inflation will prove more resistant than even FED expects 
• If recession is mild, then inflation will be more persistent than otherwise
• Blackrock is even more over weight inflation protected bonds +2
  
• Also prefer very short term bonds +2
  

It looks like they are calling for a repeat of 1973-75 recession, when both inflation and long treasury yield increased. I think this scenario is unlikely but possible. After all, the 1973 recession began with the tripling of oil prices, which was a large exogenous shock to the economy. Without a similar shock (e.g., China invading Taiwan), a more standard recession with falling inflation and falling treasury yields is much more likely.



There is an obvious winning investment in this case: long-dated TIPS, which would shoot up like a rocket. Instead they seem to recommend short-term TIPS and cash. Bizarre.

I am not sure about the duration of TIPs that they recommended as I just breezed over it and do not have time know to read the pdf on my phone.

[newtecher]

They are being vague about it. Moreover, talk about global inflation protected securities, which presumably includes government bonds similar to TIPs outside the US. Still, they claim max overweight short term government bonds and these global inflation protected securities, which are mostly TIPs anyway.

[richardsok]

Thanks, fearless.

I haven't paid attention to TIPs in a long time. They had that long slide then several months of drifting to Nowheresville. These ponies are way too volatile for comfort; the only technicals I can see using is maybe just the simple slope of the 20DMA -- and even then one needs a strong stomach. (My best signals are all but useless.) Even bullish, the short termers look like wild rides. I'm thinking a compromise between the LT and the ST funds might be TIPX, which spreads out betwn 1 and 10 years.  (And definitely buy on dips, if at all.)

Just a thought.