Market is 'getting ahead' of itself as Covid-19 infection rate rises, BlackRock CEO says

'Unquestionably, the disease curve is going to be the most important issue' Larry Fink tells World Government Summit

Larry Fink, chairman and chief executive of BlackRock, says government policy measures and ample liquidity has helped markets bounce back from March lows. Bloomberg

The stock market in the US is “getting ahead of itself”, ignoring the rising rate of Covid-19 infections and a potential second wave of the pandemic in absence of a vaccine, which could force further economic retrenchment, the chief executive of BlackRock said.

“Unquestionably, the disease curve is going to be the most important issue that is going to overwhelm every other issue going forward,” Larry Fink told the World Government Summit webinar series on Thursday evening. “Yesterday, we had the highest infection rate in the world and the markets are still pretty stable.”

Markets are brimming with optimism that an anti-viral treatment to control the disease or mass inoculation within a year will be available to battle the pandemic, Mr Fink, whose firm with $7.4 trillion (Dh27.2tn) in assets, is the world’s biggest asset manager, said.

“What is remarkable ... is that there are more human beings affected today than on March 21, when [US] markets were 40 per cent lower. That just tells you the psychological transformation,” Mr Fink said.

The US government has poured about $3tn into the country’s economy and the Federal Reserve has rolled out monetary easing measures to stabilise the financial system. Giant pools of liquidity created in the market through the policy response to stabilise the country’s economy, are primarily behind the bounceback in US equity markets.

Stocks markets in the US, the largest economy in the world, ended their longest ever bull run in March when the S&P 500 Index and Dow Jones Industrial Average both fell into bear market territory. More than $20 trillion (Dh73.4tn) was wiped off the value of financial markets globally after lockdown measures around the world were introduced to combat the rapid spread of the coronavirus outbreak.

US equities have since recovered losses, ignoring a massive contraction in the country’s $21tn economy, high unemployment rates and a sharp rise in the Covid-19 infection rate in most US states. The S&P 500 index has rallied almost 40 per cent since its March low as the economy gradually reopened.

However, Mr Fink said if a second wave begins and “we don’t have those anti-viral [treatments] or we don’t have a vaccine, it is going to just be another … retrenchment economically” that would require further lockdowns and more fiscal stimulus, which comes with its own problems.

Despite this, the “marketplace is saying [the] policy response is sufficient, they [stimulus measures] are enormous, they are going to be repeated if we have the higher disease rate”, he added.

Mr Fink was joined on the panel by group chief executive of Abu Dhabi National Oil Company, Dr Sultan Al Jaber; Bruce Flatt, chief executive of Brookfield Asset Management; Francesca McDonagh, group chief executive of the Bank of Ireland and Adebayo Ogunlesi, chairman of Global Infrastructure Partners.

The International Monetary Fund earlier this week downgraded its forecast for the world economy and said it would contract 4.9 per cent this year due a more severe economic fallout from the Covid-19 pandemic. The US, the world’s largest economy, is expected to contract by 8 per cent in 2020 – a more severe forecast than the 5.9 per cent contraction the fund forecast three months ago.

Unemployment claims in US peaked at 38 million, or 14.7 per cent, in April after economic activity came to grinding halt. The unemployment rate declined to 13.3 per cent in May as the economy began to reopen, but the pandemic has wiped out all of the jobs created in the US since the 2008 global financial crisis.

“We are still witnessing real tragedy in small and medium-sized business [sector],” Mr Fink said, adding that even conversations with global business leaders are not painting a rosy picture.

“I speak to many business leaders in the world and the most important question I ask everybody is: do you believe earnings are going to in 2021 be at least as good as 2019, and only a fraction of business leaders believe their business would be as robust as they were in 2019,” he said.

“But, the marketplace is not saying that. I will leave it at that.”