Judging by the market’s sentiment a couple of weeks ago, one would have figured that an economic downturn was all but inevitable. With weak economic data from China coupled with an inversion of the short-term and long-term yield curves causing all sorts of worry, many voices came out predicting that the markets would see a downturn sometime late 2019 or 2020.
However, there have been quite a few well-known figures who have gone on to say the opposite, dismissing the importance of the yield curve inversion and other metrics. One of those was Larry Fink, head of BlackRock , the worlds largest asset manager.
Founded back in 1988 and based out of New York, BlackRock manages around $5.98 trillion worth of assets as of December 2018. Larry Fink, CEO of the company, went on to speak to CNBC after the BlackRock issued their quarterly earnings report.
Overall, the executive went on to say that there was still plenty of money waiting on the sidelines with many investors still have not moved their money into equities. This influx of capital still gives plenty of room for a prolongation of the already long bull run we’ve seen so far.
“We have a risk of a melt-up, not a meltdown here. Despite where the markets are in equities, we have not seen money being put to work,” the head of the world’s largest asset manager said on CNBC’s ‘Squawk Box.’ “We have record amounts of money in cash. We still see outflows in retail in equities and in institutions. Many people thought we were going to be in a period of rising rates. We were not and we saw huge underinvestment and people had to rush into fixed income. We have not seen that in equities yet.”
A melt-up is a situation usually defined as a sharp and unexpected rise in prices, driven by a stampede of investors who are concerned about missing out on a major price swing rather than changes in an asset’s fundamentals. Melt-ups are usually followed by sharp market reversals.
“There are huge pools of money sitting on the sidelines,” added the CEO in an earnings conference call late Tuesday. He commented that the dovishness of the Fed and other central bankers has created a shortage of “good assets,” which could be a potential factor leading to a global melt-up in equity prices. So far, the Fed slashed its rate projections to reflect no hikes this year. At the same time, the European Central Bank also pushed bank plans for future rate hikes, announcing last month it will issue cheap longs to banks in the economic zone instead.
Other major financial figures have dismissed worries over a future recession as well. Earlier in April, head of the world’s largest bond investor, Daniel Ivascyn, went on to say that the economic indicators looked strong going forward. “Given where our employment rate is currently, [a recession], holding all else equal, shouldn’t be much of a concern,” he said.
Fink’s comments come after BlackRock released better-than-expected earnings figures this quarter. However, the asset-manager missed revenue expectations overall. Despite this, shares of the company increased 2.4 percent Tuesday morning in response to the news.