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BlackRock downgrades outlook on stocks

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Yahoo Finance markets reporter Alexandra Semenova outlines BlackRock's decision to downgrade various stocks, including Chinese and energy stocks stemming from geopolitical pressures.

Video Transcript

[MUSIC PLAYING]

BRIAN CHEUNG: Well, we've all been watching the stock spill of 2022 but BlackRock saying it's time to change the investment strategy as it downgrades its outlook on stocks. Let's bring in Yahoo Finance's Alexandra Semenova for more on this. Alexandra, what is BlackRock saying, does this mean that we haven't reached the bottom yet?

ALEXANDRA SEMENOVA: Yeah, Brian, as you just mentioned, BlackRock downgraded its outlook for stocks citing increasing economic uncertainty and persistent inflation. Of course, notable to hear this from the largest investment manager in the world, handling $10 trillion in investor assets. A strategist at the firm's research arm said that they expect continued volatility in traditional financial markets, stocks and bonds, as central banks move forward with their rate hiking cycles. And as a result of this, they are underweight equities-- developed market equities.

They did, however, maintain a neutral outlook for Japanese, Chinese, and emerging market stocks. With Japanese equities specifically, they point to still easy monetary policy. With Chinese stocks, they point to the ongoing reopening from COVID but they did note that a broader global slowdown does still pose a risk to both of these asset classes.

What's very interesting about this new outlook that BlackRock put out though, is that they seem to be underscoring some sort of changing world order here, calling this the end of the great moderation and a new regime. They noted the pandemic triggered permanent changes to consumer spending, and of course, labor shortages. And adding to that the energy crisis as a result of the war in Ukraine. They point out that these aren't issues that central banks can resolve with monetary policy, and even when as far as to say that the US Federal Reserve will inevitably stunt economic growth and damage the labor market if they move forward with hiking rates before they eventually realize that inflation is just something we may have to learn to live with.

AKIKO FUJITA: So Alexandra, what does this mean for investors, is BlackRock telling investors to do anything differently as they outline this new outlook?

ALEXANDRA SEMENOVA: Yeah, Akiko, indeed they are. They said that the traditional 60/40 stock to bond portfolio is no longer going to be as effective as it was before. Of course, we have heard that argument for a few years now but it's notable to hear that from BlackRock. BlackRock itself said that in addition to trimming its own equity exposure, they increased their allocation to investment-grade credit, saying that you know, investors have to start considering portfolio allocations that are more granular, and that are adaptive to the volatility that we will expect. And they said that buying the dip will no longer be an effective investment strategy given the level of volatility and uncertainty that we're in for.

AKIKO FUJITA: Yeah, certainly a lot of adjustments being made on the back of that. Alexandra Semenova, thanks so much for that.