BlackRock's Rieder sees more downside in the short term and is holding more cash than usual

Published Wed, Mar 16 20227:55 AM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

BlackRock's Rick Rieder said stocks still have a ways to fall in a period of uncertainty, but equities should be higher at the end of the year. "I would say for the time being, cash is an attractive place to be at least for the short-term. If equities move significantly lower than where they are today, then I think it's going to be a great buy," said Rieder, chief investment officer for global fixed income. "Do I think they're going way down from here? I don't think so. But could equities go down a few percent more? I think it's a possibility… We're running a lot more cash and a lot fewer risk assets generally in the portfolio." Rieder, in an interview, said he also expects Treasury yields to move higher than he was expecting just a few weeks ago. The benchmark 10-year Treasury yield could soon be at 2.25% to 2.50%, above his earlier view of 2% to 2.25%. The 10-year was at 2.16% Tuesday, up from about 1.95% on Friday. "I think the markets are determining what the Fed's going to do in rapid fashion," said Rieder, noting the yield move is being driven by the outlook for higher inflation and higher interest rates. Yields move opposite bond prices. The Fed is holding its two-day meeting and is expected to announce a quarter point rate hike at 2 p.m. ET Wednesday, its first hike since 2018. The Fed also is expected to release its economic and interest rate forecasts. Its outlook is expected to show forecasts for hotter inflation, slower growth and a lot more rate hikes. Rieder said he expects the Fed to forecast five or six more hikes for this year, but it is doubtful the Fed will be able to make that many moves this year. Inflation has become a drag on the economy, and growth is slowing, he said. "I think this is inflation that is more embedded. It puts the Fed in a place that makes their job much harder. I don't think it speeds up the Fed. I think it will ultimately slow the Fed down," he said. The Fed could raise the fed funds rate range up by a full percentage point before stopping to assess the situation in late spring, early summer, he said. The key 10-year yield, which influences mortgage rates and other loans, could reach the 2.25% to 2.50% level quickly, according to Rieder. "I still don't think you're going to go much higher than that," he said. Rieder said the Ukraine situation has make the outlook more uncertain and inflation more of a problem. Russia is a major commodities exporter. It is the largest exporter of wheat and palladium, and it is also a major oil and gas exporter, predominantly to Europe. Rieder said stocks are subject to margin pressures and multiples may still be too high, given the fact the Fed is hiking and inflation is a concern. "I just don't think they're cheap enough yet. I think particularly the high-yield market is not cheap enough. The investment grade credit market on a relative basis is starting to get reasonable. European credit is definitely reasonable on a historic basis," he said. Rieder said there is a lot of cash that has moved to the sidelines. "There's a huge amount just sitting on their hands waiting for the clouds to part a bit," he said. "I think the picture is cloudy. … I think the game has changed and whether it's the uncertainty in the world, the illiquidity of markets, the higher discount rate," said Rieder. "I think when things settle down, stocks will move higher, and I can see a dynamic by the end of the year where stocks move higher. But I think in the interim, we're being a lot more conservative on equities."

Rick Rieder

Katie Kramer | CNBC

BlackRock's Rick Rieder said stocks still have a ways to fall in a period of uncertainty, but equities should be higher at the end of the year.