Small Cap Rebound Not Supported by Fundamentals: BlackRock's Wei Li

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Bloomberg Jul 22 23:36 · 13.4k Views

Wei Li, global chief investment strategist at BlackRock, says she is not chasing the momentum in small caps as the rebound is not supported by fundamentals.

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Transcript

  • 00:00 Wei Lee, we've seen the moves in markets over the last few weeks into small caps,
  • 00:04 thinking about the banks and energy and thinking less about maybe some of the big tech players.
  • 00:09 The point that you and the team have made over at BlackRock over the last week in your mid year round look, it feels to me that it's like just stick with what's been working.
  • 00:17 These AI themes are powerful and they're not going away and you can focus on that
  • 00:22 and ignore the politics.
  • 00:23 Can we do that this morning?
  • 00:26 Good morning.
  • 00:27 Well, it's been a very
  • 00:29 busy few weeks, both in terms of political development and now we're entering the earnings season.
  • 00:35 I think it's really important, difficult
  • 00:38 but important
  • 00:39 to cut through the day-to-day noise and really focus on the fundamental
  • 00:45 picture.
  • 00:45 And the fundamental picture remains that the earnings
  • 00:49 growth
  • 00:50 strength remains
  • 00:52 quite
  • 00:52 strong
  • 00:54 and within that tech is still expected to deliver the ballpark of
  • 01:00 US Apple market earnings growth.
  • 01:02 Yes, indeed small cap had staged quite an impressive
  • 01:06 rebound.
  • 01:07 We think that that has been catalyzed by markets extrapolating recent macro trend which is inflation is falling and that led to markets getting excited about rate cuts.
  • 01:20 But taking a step back again, cutting through the day-to-day
  • 01:24 noise and
  • 01:25 resisting the temptation to extrapolate near term momentum of macro development, we're still looking at an environment of high
  • 01:33 for longer.
  • 01:34 So in terms of the discount rates that we will use to discount future cash flow, we're still talking about.
  • 01:40 A rate that is higher than pre pandemic levels and when it comes to earnings, small.
  • 01:45 Cap
  • 01:45 for over one year now, they didn't deliver any earnings growth
  • 01:50 for this
  • 01:51 ongoing earnings season.
  • 01:53 They are expected to recover a little bit, but still really lagging the broader picture.
  • 01:57 So all of that just to say, there has been a technical rebound likely driven by sentiment positioning for small cap, but we're not chasing that momentum because that rebound is not supported by fundamentals.