US stocks can still rally 10% this year as inflation cools and earnings grow, BlackRock's Rick Rieder says
- US stocks can still rally 10% in 2022 despite the recent volatility, BlackRock's Rick Rieder told CNBC.
- The asset manager's bond chief said strong company earnings and a cooling in inflation would help equities.
BlackRock's Rick Rieder has said US stocks can still rally 10% or more in 2022 as inflation cools and corporate earnings continue to grow.
The head of bond investments at the $10 trillion asset manager told CNBC that the strength of the US economy should help companies post strong financial results. Rieder said he expects GDP growth of around 7%, and predicted earnings growth of around 12% to 15%.
"So, the equity market can get you a 10. Or maybe I'm wrong, and it's a seven or it's a 12," he said, referring to the percentage increase in prices.
Rieder said he believes there will be some lifting of the pressures that have driven inflation to 39-year highs.
"While it stays sticky, you're going to see it come off of these really extreme levels. And that'll give people some comfort," he said.
The benchmark S&P 500 stock index has fallen more than 5% so far this year, as investors have rapidly reassessed what path US interest rates could take.
Traders now expect the Federal Reserve to hike rates four times in 2022, starting in March. As recently as the fall, markets were divided about whether there would be any interest-rate increases at all.
Technology stocks have been particularly hard-hit by expectations that the Fed will abruptly switch off its stimulus. The tech-heavy Nasdaq 100 index on Wednesday entered correction territory, which is a fall of 10% or more from recent highs.
Rieder said markets could do with more clarity from the Fed about its intentions around reducing stimulus.
Over the weekend, billionaire hedge fund manager Bill Ackman said he thought the Fed should hike interest rates by 50 basis points, or 0.5 percentage points, in March to show that it's serious about inflation.
Some investors are starting to pencil in an aggressive 50 basis point hike, although most think a 25 basis point increase is the likeliest outcome.
Rieder said there would likely be further volatility in markets before things calmed down. "It's definitely not gonna be a straight line," he said.
He said the Fed should be careful and clear about pulling back stimulus, including when it comes to reducing the size of its bond holdings. "Let's reduce a bit of the balance sheet, but be very deliberate in how we do it," he said.