BlackRock's Rieder Talks Jobs Report, AI and Markets

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Nonfarm payrolls came in strong, good news for labor market and economy.

Speaker1

Rick Rieder

The headline jobs number is solid, but the real story is beneath the surface: construction is strong due to AI build-out, while real estate and finance are softening, with insurance weak as AI creates efficiencies.

Health care and local government added many jobs; food/drinking also solid. The economy has a big AI cylinder driving growth, but other parts are mixed.

There's a lot of cash in the market, with money market funds and credit at tight levels.

Speaker1

Rick Rieder

Money market inflows keep coming, supported by a strong economy. Fixed income has strong demand from pensions and life insurers at attractive yields. Equity net supply is low due to buybacks, supporting technicals.

Even with IPO calendar digestion, buybacks keep net equity supply low.

What is your view on investment grade data center issuance? Overweight or cautious?

Speaker1

Rick Rieder

Data center financing adds supply, so I'd run less interest rate exposure. Some IG issuance is okay, but convertible bonds with equity upside are more interesting, as is quasi-private data center finance.

The supply from data center build shows up in employment and needs to be factored into duration positioning.

The strong jobs number strengthens the dollar, weakening the yen. Japan may need to sell Treasuries to defend, impacting yields.

Speaker1

Rick Rieder

The Bank of Japan raising rates, along with ECB and others, creates a cycle that U.S. rates must respect. Japan has been deliberate on rate hikes, impacting the currency. I like Japanese equities, but front-end rates are a tough trade.

We watch JGB positions and hedging closely.

What moves are you making in your ETF?

Speaker1

Rick Rieder

We've reduced interest rate exposure given the strong economy, been cautious on agency mortgages, and like European fixed income as it has already priced in hikes. We're neutral on EM but have slightly higher exposure.

Watch negative convexity in rates. Europe offers better balance and carry.

Does the war (geopolitical conflict) affect your strategy if oil holds around $100?

Speaker1

Rick Rieder

We watch oil forwards and inflation breakevens. If the situation stays in a range, markets are generally okay given the cash on the sidelines. We've used the drop in equity volatility to hedge downside tail risk.

Volatility has come down in indices, allowing us to protect the left tail.

Brent forward curve doesn't go below $80 until 2027. Does a large IPO matter for fixed income?

Speaker1

Rick Rieder

Large IPOs matter for equity supply/demand, but for fixed income, the bigger dynamic is that pensions and endowments are fully funded and find real rates attractive for liability matching. Creating 6.5-6.75% yield is compelling.

Equities have had a powerful run, and now fixed income yields are attractive for long-dated liabilities.

AI seems to change the economy's trajectory.

Speaker1

Rick Rieder

AI has been about 28% of U.S. economic growth over the last three years and 70% of S&P returns. The AI cylinder is humming, but the rest of the economy is just okay—small business and lower-income are not great.

Every part of the economic ecosystem is being impacted by AI spend and capex.

The rotation into old-economy AI beneficiaries (HVAC, Ford, Caterpillar) is real. Dow was up 900 points.

Speaker1

Rick Rieder

The rotation makes sense: first semis, then electrical equipment, cooling, power. Companies tangential to AI now have direct revenue, and multiples are not egregious. Diversification away from concentrated AI names is real.

Power and infrastructure demand is strong.

Are there industries AI will miss? Do you worry about AI eating jobs?

Speaker1

Rick Rieder

The economy is like a three-month-old birthday cake: the icing (AI) is great, but the bulk underneath is not doing well. AI will displace many workers. The Fed needs to be anticipatory of this and its effect on the broad population.

Productivity gains from AI, robotics, and automation are already kicking in.

With strong jobs and high inflation, shouldn't the Fed raise rates?

Speaker1

Rick Rieder

The interest rate tool doesn't impact AI spend or hyperscaler demand; it impacts housing and small business. Inflation is above target, but the Fed should hold, not hike, given supply-shock dynamics and the limited effectiveness of rate hikes on sticky inflation areas like healthcare and insurance.

Europe is hiking into a supply shock and seeing a tangible slowdown. The Fed should be anticipatory and look at the whole picture.

Private credit and private equity redemption gates are spreading. Is that a concern?

Speaker1

Rick Rieder

Idiosyncratic concerns exist in some areas like software, but it's not systemic. Private credit is term-financed, not overnight-funded like in 2008. The opportunity set is now more robust as normalcy returns to pricing for illiquidity.

Some names with debt to roll need watching, but no systemic crack.

What would you ask Kevin Hassett?

Speaker1

Rick Rieder

I'd ask about the broad picture: the interest rate tool vs. liquidity vs. balance sheet, and how to contain the back end of the yield curve given heavy Treasury issuance. Financial velocity is driven by the yield curve, not the overnight rate.

Commercial real estate, residential, and corporate financing are key.

Kevin Warsh said central banks are too comfortable with 3% inflation. Do you think the Fed is comfortable?

Speaker1

Rick Rieder

Inflation momentum matters. Rate-sensitive parts (shelter, used cars) are different from sticky, rate-insensitive parts (healthcare, education, insurance). The Fed's tool is ineffective for the latter. If it's a supply shock, the Fed should be thoughtful and not just adjust rates superficially.

Maybe the monetary base or balance sheet should be adjusted instead. The simplistic top-line answer is superficial for complex subjects.

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