BlackRock strategists have warned that investors should prepare for a period of volatility in the markets as the US economy continues to recover from the impact of the pandemic. In its 2024 global outlook, the world's largest asset manager highlighted the structural shifts in the economy caused by the pandemic as reasons for the expected volatility. The first shock was the hit to the labor market, resulting in job losses and subsequent job growth being a result of the economy recovering from those losses. The second shock was the rapid rise in inflation, as supply chain disruptions led to a mismatch between buyer demand and supplier capabilities. Although inflation has cooled from its peak, it remains above the Federal Reserve's target.
BlackRock also pointed out that the US is still dealing with the fallout from these structural shifts, and the economy may face challenges such as a worker shortage as older Americans retire. The strategists believe that central banks may need to keep interest rates higher to prevent a rebound in inflation. Overall, BlackRock predicts a regime of slower growth, higher inflation, higher interest rates, and greater volatility.
The asset manager has previously warned of higher volatility this year, which has already been reflected in the stock market. Stocks plunged 20% in 2022 before recovering to approach new all-time highs this year. However, BlackRock suggests that equity investors may not have fully priced in the extent of the damage coming for the economy, with earnings stagnation and economic headwinds potentially impacting US firms.
While BlackRock is cautioning investors to take a more active approach to their portfolios, other forecasters on Wall Street, such as Bank of America, Deutsche Bank, and Société Générale, are still predicting a positive year for stocks and expect the S&P 500 to reach new all-time highs in 2024.