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Market Extra: BlackRock isn’t buying the dip as volatility climbs in sinking stock market

BlackRock, the world’s largest asset manager, isn’t wading into the sinking stock market to buy the dip, as the S&P 500 trades in bear-market territory Monday and concerns over surging inflation and slowing U.S. growth intensify.

“We’re not buying the stock dip because valuations haven’t really improved,” BlackRock strategists said in a note Monday. “There’s a risk of Fed overtightening, and profit margin pressures are mounting.”

Stock market volatility is climbing as fear growth that the Federal Reserve may become more hawkish at its two-day policy meeting that starts Tuesday, as the central bank aims to bring soaring inflation under control through monetary tightening. Some investors are worried that hotter-than expected inflation in May could prompt the Fed to become more aggressive in an already slowing U.S. economy, potentially triggering a recession.

See: Economists say Fed will stick to 50 basis points this week, Powell will open door to more aggressive action later

Wall Street’s “fear gauge,” the Cboe Volatility Index,

has jumped Monday to 34, up from slightly under 28 on Friday, FactSet data show, at last check. That’s above the VIX’s 200-day moving average of around 23 and higher than its 50-day moving average of almost 27. 

The S&P 500

opened in bear-market territory Monday and remained there late morning as it was trading around 3,783, according to FactSet data, at last check. The S&P 500 would enter a bear market with a close below 3,837.25, marking a 20% drop from its record high in early January.

Read: Stock plunge puts S&P 500 on track to enter a bear market: What investors need to know

S&P 500, fear gauge

The U.S. stock market dropped last week, with all three major benchmarks booking their biggest losses since January. As stocks were slumping Friday, Keith Lerner, co-chief investment officer of Truist Advisory Services, told MarketWatch that he worried the S&P 500 could see accelerated selling if the index broke through its May 20 low of 3,810.

The S&P 500 fell to 3,750.76 on Monday morning, setting a new 52-week low for intraday trading, FactSet data show, at last check. The index was down 2.9% in late morning trade, while the Dow Jones Industrial Average

dropped 2% and the technology-heavy Nasdaq Composite

slid 3.7%, FactSet data show.

The CBOE NASDAQ Volatility Index, or VXN, jumped to around 40 late morning Monday, from about 34 on Friday.

“We want to see the VXN get to at least 37 if not 49 before believing U.S. tech stocks are truly washed out enough to play for a bounce,” Nicholas Colas, co-founder of DataTrek Research, said in a note emailed Monday. 

Meanwhile, analysts expect companies in the S&P 500 index to increase profits by 10.5% this year, according to the BlackRock report, which cited Refinitiv data.

“That’s way too optimistic, in our view,” the BlackRock strategists said. “Stocks could slide further if margin pressures increase.”

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