The chief investment officer of the world’s largest asset manager says the shocks triggered by tensions in the Middle East could eventually create golden opportunities for stock investors.
In a new CNBC interview, Rieder says investors should be more cautious about buying risk assets for now, as the war in Iran shows no signs of letting up.
Rieder also believes that the Fed will cut rather than hike rates, despite rising oil prices.
“So we have a very sophisticated strategy when you go through shock periods like that, called hunker down. I think for the time being, you’ve got to be a bit more conservative around what you’re doing in both interest rates, beta risk, equity risk and some of the credit risk. So we’ve taken some of our risks down during this period…
People talk about the Fed is going to have to hike. I don’t think the Fed’s going to hike. In fact, I think they’re going to cut rates. But you have places like the ECB, Bank of England, that are going to raise, probably going to raise rates, depending on how the growth transmission happens.”
The BlackRock CIO appears to believe that rising oil prices are just temporary and that the Fed will look through it and cut rates to stabilize markets, support employment and boost economic growth. Meanwhile, Europe is more exposed to energy imports, and central banks would have to hike to keep inflation under control.
Looking at US equities, Rieder believes that there’s a ton of dry powder waiting in the wings, noting that the current market correction is giving investors a window to buy quality names at lower multiples.
“People don’t realize how much cash is sitting on the sidelines. You see it today, particularly in the equity market. Why is it that some days the news is terrible, and then by the end of the day, the market grinds up?
We, I think, like others, have built a lot of cash in our portfolios, so we’re looking to try and work our way through what is a stressed period. But boy, I’m looking forward to getting on the other side. And quite frankly, markets have been pretty composed. And like some of the spread markets, they haven’t really backed up that much.
So anyway, you will see what happens over the next couple of weeks. And then I want to jump in and buy some stuff.”
As of Wednesday’s market close, the S&P 500 is trading at 6,591, down over 4% on the year.
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