Investors should continue to defend themselves, says the BlackRock strategist
According to a BlackRock strategist, investors should avoid being lured back into riskier stocks and funds by this January rally. Wall Street has had a solid start to 2023, with all three major moving averages positive in January. The Nasdaq Composite Index was up 8% at the close on Tuesday. However, Gargi Chaudhuri, head of iShares Investment Strategy, said in a note to clients on Tuesday that this rally looks like another bogus idea, similar to last summer. “So far, January 2023 price action bears an uncanny resemblance to July 2022, when risk assets rallied and interest rates fell as investors bought into the idea of a ‘soft landing’ – the idea that slowing growth will slow inflation and would avoid the need for further Fed rate hikes,” Chaudhuri said. “Many investors seem convinced once again that inflation is all but defeated and that slower growth will not only obviate the need for further rate hikes, but it will even allow the Fed to cut rates before the end of the year,” she added. Last summer, the S&P 500 rallied in July and then broke above 4,300 in early August. But the rally petered out and the broad market index fell to a fresh one in October Bear market low back from under 3600. .SPX mountain 06/01/2022 The stock market experienced a short life last summer ge rally. Inflation has eased in recent months and a recession is broadly expected for this year, raising hopes among traders that the Fed will soon pause its rate hikes and maybe even start cutting later in the year. However, Chaudhuri said the market is overtaking itself. “We expect inflation to remain persistently high and we take the Fed at its word that it remains committed to achieving its mandate of long-term price stability (which it defines as around 2% inflation) and raising interest rates 5 to 5.25% increase. We don’t expect the Fed to ease this year, even if growth slows, making it likely that we’ll see a US recession in the second half of 2023,” Chaudhuri said. If Chaudhuri is right, investors may be well served by sticking with some of the strategies that have worked over the past year. The notice highlighted short-term debt such as iShares’ 1-3 year Treasury Bond ETF (SHY) and 1-5 year investment grade corporate bond ETF (IGSB) as avenues for investors to defend themselves. Short-term debt makes sense in a rising interest rate environment because its value is less affected by interest rate increases and because an inverted yield curve gives investors access to higher-yielding assets that are considered safer than long-term securities. On the stock front, Chaudhuri pointed to iShares’ Russell 1000 Value ETF (IWD) as a fund that could continue to outperform, saying the Core S&P Small-Cap ETF (IJR) makes sense as the group despite a “relatively cheap” remains a quick start into the year 2023.
https://www.cnbc.com/2023/01/25/-etf-picks-investors-should-ignore-rally-and-play-defense-blackrock-strategist-says.html Investors should continue to defend themselves, says the BlackRock strategist
