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Don’t underestimate the U.S. economy


BlackRock's CIO on markets and what he calls "the polyurethane economy"

BlackRock’s Rick Rieder said this week that while the economy is slowing, he believes it can rebound.

“I call the U.S. economy, the polyurethane economy because it flexes, adjusts like a Tempur-Pedic bed. It can take some pretty significant shots, and it just rebounds,” Rieder told CNBC’s “ETF Edge” on Monday.

“We think real GDP will finish at 2½%. Next year, we think it’s going to be a percent and a half positive so moderating slower,” the firm’s Global Fixed Income chief investment officer explained. “But I think people underestimate” the U.S. economy.

He added that he “doesn’t understand the concept of a ‘landing'” and believes cycles are something we saw 20 years ago.

Rieder, who also oversees BlackRock’s Global Allocation team, thinks that people are still going to buy equities despite the current demand for Treasury bonds.

“Are we going to see 25% returns in equities? I don’t think so, but I think equities will do their job. I think the multiple will stay relatively unchanged,” he said.

He noted that his thesis will hold as long as rates move lower in the second half of 2024.

“If you think the yield curve can normalize, you could create a decent tail wind for the equity market,” Rieder added.

Morningstar’s 2023 Outstanding Portfolio Manager winner prefers the U.S. to Europe for investment opportunity as he thinks Europe is “slowing faster.”

“If you take the multiples of the Magnificent Seven, you can find a lot of stocks trading at three, four or five times cash flow,” Rieder said. “I’ve learned in my life if you can buy stable businesses at three, four or five times cash flow that’s pretty darn attractive.”

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