A recession unlike any other will tip the world into a period of prolonged and heightened instability where investing approaches that once worked won’t work anymore, according to BlackRock, the world’s biggest asset manager.
As banks aggressively increase the cost of borrowing to tame inflation, there’ll be more market turbulence than ever before, BlackRock strategists led by Vice Chairman Philipp Hildebrand wrote in a report titled 2023 Global Outlook, Business Insider reported.
That means policymakers will no longer be able to support markets as much as they did during past recessions, BlackRock predicted, describing a scenario that sounds somewhat like the Upside Down in the popular streaming series, “Stranger Things.”
A slowing housing market, delays in corporate investment plans, a decline in consumer savings and deteriorating CEO confidence are early signs of the oncoming economic slump, according to BlackRock.
The global economy has already exited a 40-year era of stable growth and inflation and a new, more unpredictable regime is here to stay, according to the New York-based investment firm, which had $10 trillion under management as of January 2022.
BlackRock provides investment, advisory and risk management solutions, so sending out a report full of dire warnings and risky scenarios could generate more business for the already top-ranked firm.
BlackRock is not alone in predicting a recession.
In June, Goldman Sachs predicted a 30 percent chance of a recession in the U.S. over the following year. Economists at Morgan Stanley forecast in October the chance of a recession within a year at around 35 percent. Earlier in 2022, JPMorgan Chase CEO Jamie Dimon warned investors to brace for an economic “hurricane” and JPMorgan, the biggest U.S. investment bank, suspended share buybacks in July after missing Wall Street quarterly expectations.
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The Conference Board, a nonprofit membership-based research organization that distributes economic information, forecast a 96 percent chance of a recession in the fourth quarter of 2022 and first quarter of 2023, thanks to Federal Reserve interest rate hikes.
“Recession is foretold as central banks race to try to tame inflation. It’s the opposite of past recessions,” BlackRock strategists said. “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.”
To navigate the volatility ahead, BlackRock said investors need more dynamic methods — more frequent portfolio changes and a more “granular view on sectors, regions and sub-asset classes.”
“What worked in the past won’t work now,” the strategists said. “The old playbook of simply ‘buying the dip’ doesn’t apply in this regime of sharper trade-offs and greater macro volatility. 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 S&P 500 index was about 17 percent lower on the year through Thursday, Dec. 8, while the Dow Jones Industrial Average was off about 7 percent, according to FactSet.
“We don’t think equities are fully priced for recession,” BlackRock said. “Corporate earnings expectations have yet to fully reflect even a modest recession.”