By Stephen Culp
NEW YORK (Reuters) – BlackRock Investment Institute on Monday downgraded the rating for developed market (DM) stocks to “neutral” from “overweight”, citing the U.S. Federal Reserve’s potentially overzealous efforts to rein in inflation and signs economic slowdown in China.
Regarding the rise of Fed rhetoric “promising to lower inflation at all costs”, senior analyst Jean Bolvin writes that the central bank conundrum “involves the sharpest political compromise for decades: between stifling growth via sharply higher rates or living with supply-driven inflation.
On Wednesday, the publication of the minutes of the last monetary policy meeting of the Federal Open Market Committee (FOMC) could shed light on the position of the Fed on this compromise.
On Friday, the Commerce Department is expected to release its Personal Consumption Expenditure (PCE) report for April, which will provide evidence as to whether price growth has peaked and the effect of higher inflation over the longer term. on consumer spending.
Beyond the prospect of overly aggressive Fed tightening, Bolvin expects China’s economic woes to be contagious, saying, “China’s growth hit is starting to rival its 2020 shock. and already exceeds that of the global financial crisis”.
So far this year, the S&P 500 and Nasdaq have fallen more than 17% and 27%, respectively. As of Friday’s close, the S&P 500 closed within 2 percentage points of confirmation that it has entered a bear market after hitting its last closing high on Jan. 3.
(Reporting by Stephen Culp; Editing by Mark Porter and Will Dunham)