Investors should be wary of US stocks as the damage from Fed tightening hasn’t yet been reflected in markets, BlackRock strategist says

• A BlackRock strategist said the US stock market hasn’t fully priced in central bank tightening yet.

• BlackRock’s Ann-Katrin Petersen has a “more cautious stance on US equities for the time being.”

• The Fed’s rate hikes have caused serious “damage” to the US economy, she told Bloomberg TV.

Investors should be cautious of US stocks because the market hasn’t fully priced in the Federal Reserve’s interest rate hikes yet, according to a top BlackRock strategist.

Ann-Katrin Petersen, a senior investment strategist for the the asset management firm, is keeping a “more cautious stance on US equities for the time being,” she told Bloomberg TV Tuesday.

Results from first-quarter earnings reports, which kicked off earlier this month, won’t reflect the Fed’s tightening either.

“The earnings outlook and also generally the US equity outlook… does not yet reflect the economic damage that is inflicted upon the US economy and US earnings by the US Federal Reserve’s tightening cycle,” Petersen said.

The consensus view on Wall Street is for flat earnings this calendar year, but even that is on the “optimistic side,” she added.

The central bank began its tightening campaign in March 2022 to combat decades-high inflation, raising rates at nine consecutive meetings.

Markets widely expect one more quarter-point increase at next week’s Fed meeting, with odds for a rate cut growing later in the year, according to CME’s FedWatch Tool.

Others on Wall Street have offered similar sentiments about the market’s muted moves despite harsh macro conditions.

“This market dynamic artificially suppresses perceptions of macro fundamental risk,” Marko Kolanovic, JPMorgan’s chief market strategist and co-head of global research, wrote in a client note Monday.

In the event of further rallies in stocks, he said investors should sell and take some profits as soon as there’s a bounce.

“Robust fundamentals bode well for 1Q earnings results, but we advise using any market strength on reporting to reduce exposure,” he added.

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