BlackRock’s Rieder says Fed could spark relief rally and market sell-off could be nearing an end

Published Tue, May 3 20223:30 PM EDTUpdated Tue, May 3 20223:42 PM EDT

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

BlackRock's Rick Rieder said the Federal Reserve could spark a relief rally this week if the central bank does not surprise the markets. The Fed started its two-day meeting Tuesday and is expected to announce a 50-basis-point rate hike Wednesday afternoon. Futures markets are pricing in the potential for three more half-point rate increases this year after this week's anticipated hike. Investors are watching to see if Fed Chairman Jerome Powell signals the central bank could be even more hawkish when he speaks after the meeting Wednesday afternoon. "I think if you hear around where the base case is, I think markets would breathe a sigh of relief," said Rieder, BlackRock's chief investment officer of global fixed income. He expects the Fed will hike into 2023 and then stop. "I'm of the opinion they're not going much past neutral — 3%, 3.25%. I don't think they're going much further than that," Rieder said. A bout of selling that's coming to an end? Rieder said he remains positioned for the downdraft in stocks and move up in yields, but he expects the move is more than 90% over. "You've gotten a lot of selling done. A lot of squaring of positions," Rieder said. "We're positioned for a financial tightening. I still think you're supposed to be in that mode for a bit of time," he added. Rieder notes that some large cap stocks have become attractive, and 4,000 on the S & P 500 would be a good spot to buy. The S & P 500 hit a new low of 4,062.51 Monday before ending the session higher. The broad-market index gained Tuesday. The 10-year Treasury yield touched 3% on Monday for the first time since late 2018. Yields were lower Tuesday with the 10-year near 2.96%. Rieder said the benchmark yield could continue to rise. "Will the 10-year go up another 25 to 50 basis points? I could see it. Inflation is stickier than anyone thought," he said. Rieder said the war in Ukraine changed the outlook for inflation, with increased pressure on the prices of food, energy and other commodities. "That changed the whole paradigm," he said. Most bond funds have had a tough year so far. Rieder's Strategic Income Opportunities Fund has been outperforming traditional core bond funds by over 6%, according to data on the Morningstar Intermediate Core Bond category. That category is down 9.89%, while the BlackRock fund is down about 3.5% for the year so far.

Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income, speaks during a Reuters investment summit in New York, November 7, 2019.

Lucas Jackson | Reuters

BlackRock's Rick Rieder said the Federal Reserve could spark a relief rally this week if the central bank does not surprise the markets.