BlackRock CEO joins chorus sounding alarm on market rally

(Bloomberg) -- The big rally in stocks and bonds has some of the world's top money managers putting up warning signs.

Laurence Fink and Howard Marks joined the likes of Bill Gross and Jeffrey Gundlach cautioning that buyers may be ignoring sluggish economic growth and Britain's departure from the European Union as they look to put their money somewhere, anywhere, amid low interest rates.

"We are living in a difficult, low-return world that has been ignoring risk incidents," says Howard Marks co-chairman of Oaktree Capital.

"If we don't see better than anticipated corporate earnings I think the rally will be short-lived," Fink, CEO of BlackRock, said in an interview Thursday.

A run-up in global stocks has added more than $4 trillion to the value of equities worldwide since June 27 on speculation central banks in major economies will boost stimulus. It's been a swift turnaround from the doom-and-gloom surrounding global equities on June 24, the day after the British vote, when stocks lost $2.5 trillion in market value.

On the fixed-income side, the speculative-grade bond market that was accompanied by bearish calls coming into 2016 has been on a tear, with gains at 12% for the year. But the global market rally, underpinned by low interest rates around the world, carries dangers, Marks, co-chairman of Oaktree Capital, said in a telephone interview.

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Post-Brexit, many clients may want to sell, but others could see the volatility as a boon.

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"We are living in a difficult, low-return world that has been ignoring risk incidents," Marks said. "When the market shrugs off its problems, it is not a plus, as that permits problems to accumulate. Up-cycles don't go on forever."

BlackRock CEO Laurence Fink said he hopes technology will account for 30% of revenue in the next five years.

Janus Capital Group's Gross and DoubleLine Capital's Gundlach said sovereign bonds, with yields at record lows, were too risky. Gundlach said in a webcast earlier this week that there's a "mass psychosis" among investors seeking yield.

"Call me old-fashioned, but I don't like investments where if you're right you don't make any money," Gundlach said.

UNPRECEDENTED CHALLANGES

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Fink, whose firm cut about 3% of its workforce earlier this year, has said the Brexit vote will weaken global economic growth and makes another rate increase by the U.S. Federal Reserve unlikely this year. BlackRock on Thursday reported a 3.7% decline in second-quarter earnings as clients shifted money from stocks to lower-fee fixed income and cash investments.

"Our clients are facing unprecedented challenges as they attempt to navigate the current investment environment," Fink said in the firm's earnings statement.

Marks said investors who insist on jumping into less-liquid assets need to be willing to ride out the rough times.

"When you go into risk assets and they go through a tough period, there will be heartburn and price declines," he said. "If you are going to need the money in the short term, you shouldn't put it into potentially illiquid assets."

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