- BlackRock upgraded European and Japanese equities heading into the second half of 2021.
- US stocks were cut to neutral as momentum from the COVID-19 restart shifted east.
- Markets have been “too eager to read hawkish intent” from the Federal Reserve, BlackRock said.
- See more stories on Insider’s business page.
The largest asset manager still sees plenty of room to run for equities — just not in the US.
BlackRock, the money-management giant that is in charge of more than $9 trillion in assets, downgraded its outlook for US equities to neutral from overweight in its newly released midyear outlook. Instead, the Larry Fink-led firm is turning positive on European and Japanese equities, which it said were primed to benefit next from the COVID-19 restart.
“Once you turn the lights back on, they’re on,” BlackRock Investment Institute head Jean Boivin said during a July 7 media briefing. “It’s been rapid, real, and powerful. We expect to see that broadening to other geographies, particularly Europe.”
Wall Street has come to a growing realization in recent weeks that the US recovery out of the pandemic has likely already peaked, with vaccinations sputtering and major markets across the country lifting COVID-19 restrictions weeks ago.
Stocks have still been on a tear in the US, nonetheless. Throughout the reopening, even as inflationary pressures have weighed on certain sectors, prices across the market keep rising, with the S&P 500 recently notching a seven-day rally.
Ahead of the final six months of 2021, BlackRock is taking a “more selective approach” on US equities. Large-cap US equities, for example, are under pressure from the threats of higher taxes and stricter regulations, BlackRock said. Small- and mid-cap companies stateside, on the other hand, may offer some potential “amid a vaccine-led domestic rebound in activity,” BlackRock said.
Broadly, though, the opportunities in equities lie outside the US, according to BlackRock.
European cyclical stocks like technology and financial companies may provide investors a chance to tap into the expected restart growth the region will see as vaccinations accelerate, according to the midyear outlook. Japanese equities, meanwhile, are primed to benefit from improving virus numbers and the global cyclical rebound, BlackRock said.
And in China, BlackRock rated equities neutral. This is the first time the nation has been broken out from the broader emerging-markets category. The asset manager said that while it was overweight on Chinese equities on a strategic basis, Beijing’s regulatory crackdown on dominant companies and slowing growth from tighter policy could put pressure on prices.
Underscoring BlackRock’s willingness to bet more on equities is its “risk-on” mindset for the coming months.
Though many investors have warned of a bubble in equity markets, investors have been “too eager to read hawkish intent” into the
‘s comments around inflation, BlackRock said. So while much of the market expects the central bank to begin raising rates in 2022, BlackRock is not expecting a rate hike until the following year.
“The market’s lack of confidence in the Fed’s commitment to its new framework poses a risk of tighter financial conditions in the near term,” BlackRock wrote. “We would anticipate this uncertainty to dissipate over time — assuming the central bank regains control of its narrative — paving the way for us to lean even more tactically pro-risk.”
Business News Governmental News Finance News
Need Your Help Today. Your $1 can change life.