BlackRock chief investment officer Rick Rieder believes that equity investors should stay the course despite the market pullback over the past week and bubble concerns.
The News
In a new CNBC interview, Rieder says he doesn’t believe the stock market is in a bubble, as he believes earnings growth is driving equities higher.
“There’s no way we’re in a bubble. I mean, the earnings are still really good. It has some characteristics of a bubble because you get this over demand, and then everybody’s got to get out at the same time.”
But Rieder notes that the market has to digest a few factors for now, which he thinks triggered the dip.
“Listen, I think this week, and in fact I would argue last week, you’ve got a couple of very big issuances in equity, but also you’re getting debt finance convert. Obviously, it was a very big convert. There is a lot of clearing space that’s taking place for that…
Friday we had a very tough day in the equity market, the bond market, and people say it was the payroll report. The 10-year moved six basis points, and it killed the equity market. There’s a lot of clearing space. There’s a lot of crowding. And I still think you’ve got to go through a bit of that digestion.”
At the end of the day, Rieder says investors need to give the market a breather because he ultimately believes that the bull run is still intact.
“That being said, you’ve got to stick in your core position because you know it’s going to work because the fundamentals are so profound.”
What It Means for Investors
Earlier this month, Alphabet (GOOGL/GOOG) announced it was raising $85 billion to support its AI buildout ambitions by issuing additional shares. Days later, the company launched a $19 billion mandatory convertible preferred stock offering, split into two $9.5 billion tranches. The securities pay a 6.25% annual dividend and convert into Alphabet common shares in three years.
That’s more than $100 billion in capital that needs to be raised, and Rieder appears to imply that investors are absorbing the new issuance by locking in gains in high-flying companies like Micron (MU) and Broadcom (AVGO).
Also, earlier this month, Rieder urged investors to “stay in it” because he’s seeing companies with one-year projected growth coming in at 20%. Meanwhile, he says the Mag 7 “are throwing off earnings growth of 30%-40%.”
In short, Rieder believes that the earnings momentum is fueling equities higher, leading him to believe that the market is not yet in bubble territory.
The Bear Case
While Rieder believes that the stock market is still bullish, Fundstrat’s Tom Lee believes the coming months could be difficult for investors. Lee predicted that the blockbuster public listings of SpaceX (SPCX), Anthropic and OpenAI could drain market liquidity, as institutional and retail investors unload their holdings to participate in the initial public offerings (IPOs).
JPMorgan’s Stephanie Aliaga echoes Lee’s sentiment, saying investors should “buckle up” for turbulence as the tech firms hit the market.
The Investor Takeaway
It is within the realm of possibility for Rieder and Lee to be correct, but the timing could be different. Rieder may be on point to urge investors to stay the course as the market digests additional equity issuances and mega tech IPOs.
At the end of the day, the outlook favors long-term investors, dip buyers and stock pickers.
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