BlackRock CEO Larry Fink says he sees a 'risk of a melt up, not a melt down' for markets

Getty Images / Michael Cohen
  • BlackRockCEO Larry Fink said that markets face the risk of a “melt-up” in an interview with CNBC.
  • He said he felt the probabilities leaned towards a sudden upswell in markets, leading to new highs, where investors face the “risk” of being underinvested
  • The CEO of the $US6.5 trillion asset manager cited the Fed’s dovish stance as a reason for the positive outlook.
  • Watch BlackRock trade live.

As the S&P 500 approaches all-time highs, BlackRock CEO Larry Fink sees markets at risk of a “melt-up, not a melt down,” according to an interview with CNBC.

“Despite where the markets are in equities we have not seen money being put to work. We have record amounts of money in cash,” the CEO said.

While Fink did not commit to a specific market target, he felt the probabilities leaned towards a sudden upswell in markets, leading to new highs, where investors face the “risk” of being underinvested (and underperforming their peers). “I would clearly tell you at this moment, most investors are exposed by being underinvested at this time.”

A market that is “melting up” can prove to be self-fulfilling as investors chase returns driven more by a fear of missing out as much as improvements to corporate fundamentals or improving economic sentiment. For the same reason, “melt-downs” can also be self-fulfilling as investors swing from greed to fear.

Markets have had extreme volatility with the S&P plunging 14% in the fourth quarter of 2018 before recovering to within 1% of previous peaks by April 2019. One important factor, beyond shifting investor sentiment, has been the changed outlook from the Federal Reserve.

Fink also alluded to this when asked why he had shifted from his normally bearish or neutral sentiment. He noted that investors had radically changed their outlook once it was clear the market no longer faced the prospects of a rising rate environment.

The Fed has notably “paused” rate hikes after raising rates four times last year. In addition, the European Central Bank has indicated its willingness to be accommodative in the face of market volatility.

“Central Banks who are, if anything, more dovish than ever, they’re not changing their behaviours related to QE anymore. There is a shortage of good assets,” said Fink.

BlackRock itself has benefited from this market resurgence, reporting earnings well ahead of expectations. The $US6.5 trillion asset manager rose nearly 3% as a result.

Fink also relayed that there was room to run in the IPO market despite the initial choppy trading of Lyft. 2019 has already seen the IPO of three multi-billion companies with several more, including Pinterest and Uber, looking to hit the public markets in the next few weeks.

“I think everybody is looking for a new story. And so, when you have these IPOs it’s a new story,” Fink said.

BlackRock is up 18% year to date.

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