The U.S. stock market's two-day tech-led fall last week has revived investor worries about a spiral of selling that could crash the broader market, but Rick Rieder, head of the BlackRock Global Allocation team, does not see stocks going off a cliff.
Indeed, the US$23.2 billion BlackRock Global Allocation Fund that Rieder runs currently has options trades that would benefit from a rebound in stocks.Last week's pullback in U.S. stocks from record highs came after investors piled into big tech names such as Apple - particularly buying bullish call options. That has caused debate about whether shares are over-extended as investors, buoyed by central bank support, try to look beyond the coronavirus pandemic.
Rieder says investors' concern that stock markets are overpriced is misplaced. While some stocks are grossly over-valued, the generic market is not, he said. A low discount rate is generally seen as positive for risk because it lowers the threshold to make an investment cash-flow positive. Lowering the risk-free rate - the Fed rate or comparable Treasuries - means that the cost of acquiring capital goes down and makes equities cheaper.