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Russell 2000 Rally to 'Lose Some Steam,' BlackRock Says

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Bloomberg Jul 18 06:24 · 43.6k Views

BlackRock Investment Institute Senior Investment Strategist Ann-Katrin Petersen says the outperformance of the Russell 2000 index of small-cap stocks will fade. "We are observing that 40% of earnings are currently contracting," Petersen said on Bloomberg Television, Thursday. "This rally of the past days could lose some steam."

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Transcript

  • 00:00 So what we've witnessed is that the cooling inflation in the US has led to reversal of the momentum create.
  • 00:06 But what we are keeping a close eye on is the earnings season.
  • 00:10 Our cookie
  • 00:11 picking off for the second quarter
  • 00:13 and as a matter of fact in Russell 2000 which is of late outperformed
  • 00:18 the large cap
  • 00:19 tech heavy NASDAQ.
  • 00:21 In the Russell 2000, we are observing that 40% of earnings are currently contracting
  • 00:28 whilst consensus now.
  • 00:30 So the Black of Investment Institute
  • 00:32 expect that in terms of corporate earnings, the tech leadership will likely continue.
  • 00:38 And hence
  • 00:39 we think that this
  • 00:41 rally of the past days could lose some steam and we stick
  • 00:45 to watching
  • 00:47 what the transformative impact will be in the earnings seasons.
  • 00:51 The informative transformative impact of
  • 00:53 investment in the real economy related also to artificial intelligence.
  • 00:57 So be it technology, be IT infrastructure and also energy systems that need to be built for this transformation.
  • 01:05 So and Katrina, I mean, again, U.S.
  • 01:06 stocks hit a new record high.
  • 01:08 Then we're seeing, you know, some of some of what's going on in Treasury yields.
  • 01:11 Again, how do you see these opposing views and when do they stabilize, if they stabilize?
  • 01:18 So
  • 01:19 what we continue to prefer at the current juncture is the
  • 01:23 US equity market based on the AI theme
  • 01:26 when it comes to the US Treasury market, very technically.
  • 01:30 So over the next 6 to 12 months neutrally positioned as we think that longer term
  • 01:36 the long term yield can swing in both directions.
  • 01:39 What we like though is
  • 01:42 income in fixed income.
  • 01:44 This relates both to the US but also
  • 01:47 to
  • 01:48 Europe as well as investment grade
  • 01:52 credits.
  • 01:52 So we think in a world where rates will be structurally higher, yes, we're talking about rate cuts
  • 01:58 and the ECB will be meeting today
  • 02:01 and
  • 02:02 the market consensus on Fed rate cut in September is
  • 02:06 building.
  • 02:07 But this will be an environment where the room for rate cuts is relatively limited.
  • 02:13 So we think that rates will be structurally higher and this supports the appeal of income and fixed income.