BlackRock Echoes AI Driven Market Run, Warns of Mild Recession
The world’s largest asset manager believes the artificial intelligence-driven market run is real and here to stay. The sentiments come against the backdrop of AI-focused plays triggering one of the best-ever first of the year rally, with tech-heavy Nasdaq up by more than 30%. BlackRock has since reiterated its bullish call on semiconductor plays, developing chips that power the revolutionary technology and its innovations.
BlackRock AI Call
In a mid-year research report to investors, BlackRock’s research arm reiterated an overweight call on AI plays. It also emphasized that AI tools have the potential to unlock more value from the data gold mines that most companies are sitting on. The revolutionary technology has already shown it has what it takes to analyze huge chunks of data, making it easier for companies and people to make informed decisions based on the data sets.
BlackRock sentiments come amid growing concerns that the overall stock market gains are increasingly concentrated on a few companies. The fact that the rally is not spread out but focused on AI plays has been bone-on-bone contention among analysts and retail investors.
Nevertheless, if history is anything to go by, then gains in the stock market have always been concentrated on small cliques of plays. According to BlackRock, AI can be a big driver of returns over the years even when the mast environment is not good.
On the other hand, BlackRock strategists have warned that the risk of a mild recession is still in play, which could be the reason behind the short-term downturn in developed nation equities. The Federal Reserve’s hiking interest rates to the highest level in years has triggered a significant spike in borrowing costs, something that’s making it difficult for people and individuals to access cheap capital. The result has been a slowdown in economic activities.
Nevertheless, the prospect of the economy plunging into recession is declining daily, going by the string of positive economic data. The labor market has remained resilient, with inflation levels declining significantly from four-decade highs. Investors positioning themselves for a credit crunch early in the year have been disappointed in missing out on the huge rally in the market.
The US economy has remained resilient despite the high-interest rate environment. The banking crisis coming and going without having a ripple effect has all but helped quash concerns helping fuel a buying spree in the market.
Even though stock prices are not low enough, BlackRock has been building up positions amid expectations of a mild recession. The investment firm holds over 7% of the Nvidia stock, which has more than tripled in value in 2023 on receiving a boost from the AI-driven market rally.
With interest rates expected to remain at elevated levels in the race to try and push inflation levels higher, BlackRock favors being bullish on short-dated US bonds for income. The asset manager expects the FED to hike interest rates to highs of 5.75% and keep them at those levels until the second half of next year.
According to the asset manager, the central bank will keep policy tight for a long time to deal with the persistent inflationary pressures fueled by supply constraints and transition to a low-carbon economy.