- Investors should expect “uncertainty and volatility” in the stock market for weeks until the Fed clarifies its policy stance, says BlackRock’s Rick Rieder.
- The CIO of global fixed income, who oversees $2.7 trillion, expects the Fed to remain very accommodative for the foreseeable future.
- But Rieder noted that positive economic data is accelerating investors’ anticipation of a policy change and raising uncertainty.
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Investors should brace for further uncertainty and volatility in the stock market until the Federal Reserve clarifies its policy stance, said BlackRock’s Rick Rieder, the firm’s global fixed-income CIO overseeing $2.7 trillion.
Lack of clarity around how and when the Fed will begin tapering asset purchases and reduce its accommodative stance has unsettled markets recently, and Rieder expects this dynamic to persist. Stocks sharply sold off alongside spiking 10-year Treasury yields on Thursday after Fed Chair Jerome Powell refrained from outlining specific steps to rein in what he described as “disorderly” markets.
While some investors are nervous the Fed may raise rates sooner than expected, Rieder said he expects Fed policy to remain very accommodative for the foreseeable future. However, the “very noticeable improvement” in economic conditions (like the blowout jobs report Friday morning) makes it difficult to tell where exactly the Fed will head from here, and that uncertainty will lead to market volatility.
Rieder added that when a move toward reduced policy accommodation does take place, volatility in risk-free and risky assets may continue as markets adjust to those changes.
“While markets have always known that this would happen, the growth data, and now employment are accelerating the anticipation of this policy evolution, and thus we’ve seen many financial assets respond very quickly and at times in a dislocating manner, as so many questions have yet to be answered,” Rieder said.
Rieder expects more clarification from the Fed no later than the June meeting, and added that markets will be paying close attention to the next FOMC meeting on March 17 for any guidance.
If more clarification comes, markets would be “soothed,” but “until then, though, expect more volatility, since markets hate uncertainty, as amply displayed over the past week.”