The 'Great Moderation' is over. That's the message from the latest BlackRock note warning that the period of steady growth and inflation that most have 'enjoyed' for the past decade has come to an abrupt end and because of that, investment philosophies have to change, just as rapidly.
Strategists including Wei Li, Vivek Paul and Scott Thiel wrote in a mid-year report by BlackRock Investment Institute that:
“We are braving a new world of heightened macro volatility and higher risk premia for both bonds and equities.”
And, echoing Jay Powell's "there will be pain" warnings, the BlackRock strategists warn:
“The Federal Reserve, for one, is likely to choke off the restart of economic activity and only change course when damage emerges.”
Simply put, they explain, constrained by the “hyper-politicization of everything,” policy makers will struggle to tackle the fallout.
Most notably, as Bloomberg reports, while the world’s largest asset manager retains its long-term bullish view on equities, but has gone underweight developed-market stocks in the near term as the risk of stalling growth rises.
Investors should prepare to be nimble, BlackRock suggests, persistent inflation as well as sharp and short swings in economic activity will be the modus operandi going forward.
Last week's hope-inspiring ramp in stocks was driven by another massive short-squeeze.
And for now that squeeze is over...
Reiterating SpotGamma's comments that 'rallies should be categorized as short-covering and subject to failure', BlackRock concluded ominously:
“We could go back to the volatility seen in the 1970s,”
“This regime is not necessarily one for ‘buying the dip.’ Policy will not quickly step in to stem sharp asset price declines.”
3900-3910 is first resistance, followed by 3950.
SpotGamma does not see a key downside support line until 3800.