BlackRock CEO praises Federal Reserve but says stock-market bottom is "impossible" to know as unemployment surges and buybacks suspension keeps markets bleeding.
The stock market is down over 20% from the all-time high. Ever since equities started showing signs of life on Mar. 24, investors have been seriously considering buying the dip. Stocks are considerably cheaper and the chance of buying the generational bottom is hard to pass on.
The problem with this logic is that bottoms are virtually impossible to predict. Just ask the chief executive of the world’s largest asset manager, BlackRock.
Central banks are moving quickly to address problems in credit markets, and governments are now acting aggressively to enact fiscal stimulus.
In the letter, the chief executive of the $7 trillion asset manager believed the economy will gradually recover. Mr. Fink said that central bankers are free from structural obstacles they had to go through during the global financial crisis in 2008.
Fink stressed that he’s not suggesting that the market has already bottomed out:
That is not to say the world is without risk, nor to suggest that the market has reached its bottom. It is impossible to know.
He’s right to say that the stock market bottom is impossible to know at least until the threat of COVID-19 has been quelled.
It’s tough to see a bottom on the horizon if you’re faced with massive bear market catalysts. The biggest catalyst is none other record-shattering unemployment figures.
Goldman Sachs expects unemployment to hit 15% by June 2020. The Federal Reserve sees unemployment rising as high as 32%, which means 47 million workers will be laid off.
The massive wave of unemployment will severely impact the fundamentals of publicly-listed companies. Production will suffer and revenue will take a big hit. You wouldn’t know when the cycle might end.
On top of unemployment, another bear market catalyst is the suspension of stock buybacks.
Bloomberg reports that close to $200 billion of stock buybacks have been suspended. Many companies have pushed their stock prices higher by using their cash flow to fund generous buybacks.
The program was one of the reasons many stocks printed all-time highs. Without the funding, buyers would be overwhelmed by sellers who are looking for a quick exit under current circumstances.
Although the Federal Reserve is ready with a $2 trillion bazooka, companies who avail of government loans will not be able to buy back stock until after the loan is paid.
So far, conditions indicate that the bottom is not yet in sight. Fink is right: knowing the bottom is impossible.
The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered trading advice from CCN.com.
Last modified: September 23, 2020 1:47 PM