BlackRock's Fink sees potential risks and says the bond market will tell us where we are going
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BlackRock CEO Larry Fink said President Donald Trump's efforts to unleash capital in the private sector could have unintended consequences that would hurt the stock market.
«I'm cautiously optimistic. That being said, I have scenarios where it could be pretty bad,» Fink said on CNBC's "Squawk Box" from the World Economic Forum in Davos, Switzerland. «I believe if it'll unlock all this private capital, we're going to have enormous growth. At the same time, some of this is going to create new inflationary pressures. I do believe that's probably the risk that is not factored into the markets. I think the bond market is going to tell us where we're going.»
The 72-year-old chief of the world's largest asset manager said much will depend on how quickly the private sector can put capital to work. Trump has already touted massive private-sector promises to spend in the U.S., the latest example being the Stargate joint venture, where SoftBank, OpenAI and Oracle would invest $100 billion immediately for artificial intelligence infrastructure in the country. Plans call for the project to eventually invest a total of $500 billion.
«There are some very large inflationary pressures that we all have to be aware of,» Fink said. «And depending on how this plays out, there is a scenario where we're going to have much more elevated interest rates because of inflation. And that's going to have a very negative impact on the equity market.»
Fink said there is a possibility that the 10-year Treasury yield could retest the 5% level and even reach 5.5% if inflation re-accelerates in a meaningful way. If that happens, Fink said it would «shock» the equity market.
The benchmark 10-year note yield last traded at 4.62%.
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