BlackRock Strategies advises against US equities: "The Fed has done tremendous damage to the economy"

• Petersen: The Fed has done enormous economic damage
• The economic slowdown is reflected neither in share prices nor in earnings expectations
• Mixed earnings this season – but definitely not a disaster

Can investors soon look forward to record highs for the Dow Jones, S&P 500, DAX & Co. again? Not at all, says BlackRock Senior Investment Strategist Ann-Katrin Petersen. She warns against expectations that are too high – rather, investors should avoid US stocks.

Petersen has ‘cautious stance on US stocks’

In an interview with Bloomberg TV, the investment strategist stressed that she was “taking a cautious stance on US equities for the time being”. The titles are still valued too ambitiously, the impending economic slowdown is not yet reflected in the price levels. Even the current reporting season with the figures for the quarter of 2023 does not yet fully reflect the upcoming economic downturn. “The earnings outlook, and the outlook for US equities in general, does not yet reflect the economic damage being done to the US economy and earnings by the Fed’s tightening cycle,” Petersen said.

Earnings expectations too “optimistic”?

The key interest rates set by the Fed are currently in a corridor between 4.75 and 5.00 percent. According to the “CME FedWatch Tool”, the majority of economists are expecting another one for May 3rd rate hike by 25 basis points. Due to the high level of interest rates and persistent inflationary pressure, Petersen firmly believes that the US economy will remain weak in the medium term. So far, the consensus among Wall Street pundits is that profits will stagnate, but Petersen considers that assumption to be “very optimistic.” It’s quite possible that blue-chip earnings may even decline for the year, which in turn will be reflected in poor stock market performance, the BlackRock expert continues.

Many experts are skeptical about the recent stock market upswing

Petersen is not alone with her assessment – on the contrary, many market experts have recently expressed extreme skepticism about the comparatively good development on the stock markets. A common line of argument is that the decline in profits caused by the interest rate hikes and the loss of purchasing power by consumers is not sufficiently priced in by the lion’s share of companies. For example, the “bond king” Jeffrey Gundlach expects a US recession to begin in a few months, billionaire Bill Ackman warns of a “train accident” caused by the Fed, or investment expert Troy Gayeski expects the stock market to plummet and recommends that investors sell their shares immediately.

This is how the current reporting season is going

The current reporting season has meanwhile been characterized by mixed results. On the one hand, some companies performed better than expected: Investors were particularly impressed by the earnings development of the software giants Microsoft and SAP, the luxury group LVMH and the traditional US bank JPMorgan. On the other hand, many figures from companies such as Bank of America or Netflix were greeted with a shrug – the respective shares could not benefit from the report template. As is usual with reporting seasons, there have also been a few major disappointments, including Tesla and DAX member Sartorius.

All in all, experts seem to be of the opinion that the not too high expectations of the companies will not be undershot – however, there has recently been no sign of large jumps on the international stock markets.

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