Asset management giant BlackRock has issued a warning that the market is underestimating the volatility of inflation.
In a report on Tuesday, BlackRock strategists stated that the US stock market appears to be heading for another unpredictable year, as a decline in inflation could &#34;rebound like a roller coaster&#34; and disrupt investors' expectations of an &#34;economic soft landing.&#34;
The strategists said, &#34;The market's nervous sentiment at the beginning of January indicates some concerns about future macro risks. We expect inflation to rebound, so we will also be cautious in our investment choices.&#34;
The strategists also pointed out the issue of &#34;overvaluation&#34; in the US stock market. They stated that the &#34;Big Seven&#34; tech giants in the US stock market have gained favor with investors due to their advantage in artificial intelligence. Their stock prices soared last year, driving the S&amp;P 500 index up by 24%. However, charts in the strategists' report show that the price-to-earnings ratio of these stocks in the next 12 months is about one-third higher than that of the S&amp;P 500 index.
The strategists believe that even after the market rebound in December last year, the market concentration of a few large tech stocks remains high.
Currently, many investors expect the Federal Reserve to start cutting interest rates this year as inflation slows down.
But BlackRock strategists have issued a reminder to investors:
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&#34;In our view, inflation may reach the target level of 2%, but it will not be sustained, and this risk is becoming increasingly apparent. Therefore, given the expensive valuation of US stocks, we will closely monitor whether there are any signs of a valuation bubble bursting during earnings season.&#34;
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BlackRock strategists say that the US stock market seems to be in for another volatile year, as declining inflation could "rebound like a roller coaster" and disrupt investors' expectations of an economic "soft landing".

BlackRock: US stock prices are too expensive, beware of inflation rebound