EDITOR NOTE: Is the US stock market reaching its “reopening trade” peak? That’s the guidance put forward by investment firm BlackRock. The firm is looking to rotate globally from the US, from overweight to neutral, to Europe and Japan, from neutral to overweight. In other words, the stimulus that once boosted the US economy toward post-pandemic recovery has, in the firm’s opinion, run its course. No further growth is worth the risk of investing domestically, nor is it worth the opportunity cost of investing elsewhere. In our opinion, considering the asset bubbles materializing across nearly all sectors of the economy, there is no further growth worth pursuing without the prudent hedge of safe-haven assets in physical gold and silver.
BlackRock strategists have switched to a neutral stance on US stocks while upgrading their views on European and Japanese equities, which they see as growing beneficiaries from the further reopenings of economies shut down by the COVID-19 crisis.
BlackRock Investment Institute outlined, among other items, its six to 12-month tactical views on selected assets in a mid-year report released Wednesday.
"The powerful restart of economic activity after the COVID-19 shock is broadening," with fiscal stimulus and easy monetary policies providing a bridge through the pandemic, wrote strategists at the research arm of the financial services firm.
US stocks have run to record highs this year, with investors reaching for exposure to businesses set to gain from the vaccination of millions of Americans against coronavirus and from programs put forth by the US government and the Federal Reserve to consumers and corporations to foster economic recovery. BlackRock estimated the US has received more than four times the stimulus of the global financial crisis for less than one-quarter the economic shock.
The broad S&P 500 equity index has jumped by more than 15% during 2021, led by a 40% advance in the energy sector and a 23% rise in financial stocks.
But BlackRock has now pulled back from its overweight outlook on US stocks to adopt a neutral view. "We see U.S. growth momentum peaking and expect other regions to be attractive ways to play the next leg of the restart as it broadens to other regions, notably Europe and Japan."
The strategists upgraded European equities to overweight from neutral and noted regional cyclical sectors such as technology and financials have lagged their US peers since last March. "We believe these sectors could be well positioned to play catch up as the restart broadens beyond the US.
Meanwhile, Japanese equities were pushed up to neutral from underweight.
"We see a global cyclical rebound helping boost earnings growth in the second-half of the year. The country's virus dynamics are also improving."
The MSCI Europe Index, which gauges the performance of large and mid-cap stocks in 15 developed markets, rose by roughly 14% in the first half of 2021. The MSCI Japan Index, which tracks the large and mid-cap segments of the market, edged up about 1.5% during the same period.
One area that BlackRock remains overweight in the US is small-cap stocks. "We see potential in this segment of the U.S. equity market to benefit from the cyclical rebound in domestic activity brought about an accelerated vaccination rollout."
BlackRock also remains overweight on equities overall on a strategic, or long-term, view, and on a tactical view of six to 12 months as it foresees improvement for corporate earnings at a time of moderate valuations and interest rates staying low.
Originally posted on Markets Insider