BlackRock: If inflation continues to decline, risk assets are expected to continue to rise.

Zhitong App has learned that strategists from BlackRock's investment research institute stated on Monday that if inflation continues to decline, the significant rise in the stock market and other risk assets in the final stage of 2023 may continue into the new year.

The team led by Jean Boivin, BlackRock's Head of Research, and Wei Li, Global Chief Investment Strategist, stated that if price pressures continue to ease, the dovish turn by the Federal Reserve last month could push the stock market's upward momentum to "extend into 2024."

The S&P 500 index approached historical highs in 2023, rising 24% for the year, as the U.S. economy demonstrated resilience in the face of the highest interest rates in over 20 years. This optimism was supported by expectations of interest rate cuts in 2024 and enthusiasm for artificial intelligence, driving technology stocks to their best annual performance since the dot-com bubble.

After Federal Reserve officials reiterated their readiness to ease monetary policy in 2024, the U.S. stock market accelerated its rise in the final weeks of 2023.

BlackRock strategists stated, "This once again highlights how hopes and disappointments regarding the Federal Reserve have driven market volatility throughout 2023." "In our view, the rebound at the end of last year is no different. This has led the stock market to anticipate an almost perfect outcome: a soft landing, declining inflation, and a significant interest rate cut by the Federal Reserve."

However, the U.S. stock market had a difficult start in 2024, ending a nine-week streak of gains last Friday. The team led by Boivin and Li stated that the tense start to the year in the stock and bond markets indicates that investors may be nervous about the macroeconomic outlook.

The S&P 500 index ends nine weeks of consecutive gains

BlackRock expects that the U.S. Consumer Price Index (CPI) to be released this Thursday will show that falling commodity prices will lead to a decline in inflation in 2024, but they anticipate that supply constraints will cause inflation to exhibit a "roller coaster" trend.

"We remain flexible and believe that macro risks need to be managed with caution," stated the BlackRock strategists.

Due to these macroeconomic risks, the team has a "reduce" rating on developed market stocks. However, due to optimism about artificial intelligence and "alpha potential," the team's view on these stocks is approaching neutral.

Wall Street insiders, including Max Kettner from HSBC Holdings, have warned that the U.S. stock market will experience a pullback in January. However, institutions including Bank of America, Goldman Sachs, and Deutsche Bank believe that the S&P 500 index will soar to historical highs this year. RBC Capital Markets analyst Lori Calvasina raised her year-end target for the S&P 500 index to 5150 points on Monday, implying a nearly 10% increase. Even Morgan Stanley analyst Mike Wilson, who is bearish on US stocks, stated that if economic growth accelerates, the US stock market may continue to rise.