Pick up the barbell on U.S. stocks, says BlackRock

Global investment giant upgrades stance on asset class, but encourages nuanced approach

Pick up the barbell on U.S. stocks, says BlackRock

While the ongoing surge in COVID-19 cases in the States may make investors understandably skittish on U.S. equities, BlackRock is taking on a bolder, but still nuanced, view.

In a report published Monday, Mike Pyle, global chief investment strategist at BlackRock, said the firm is upgrading its position on U.S. equities to overweight, pointing to an anticipated benefit “from both structural growth trends and a potential cyclical upswing during 2021.

Positive vaccine news reinforces our outlook for an accelerated restart during 2021, reducing risks of permanent economic scarring,” Pyle said.

He recommended taking a barbell approach to U.S. stocks, built on the view that large-cap stocks would ride structural growth trends while smaller companies are geared to get swept up in a potential cyclical upswing.

Pyle also pointed to the “higher share of quality companies” within U.S. stock sectors supported by longer-term growth trends, such as technology and health care.

The past week has seen investor sentiment caught between progress with COVID-19 vaccines and rising coronavirus infections worldwide, which have led to intensified lockdowns across North America and Europe.

The challenges confronting the U.S. and Europe in the months ahead bolster the case for further outperformance in large-cap tech and healthcare companies, according to BlackRock. However, the probability of a 2021 economic restart off the back of positive vaccine developments also strengthened the case for cyclical exposures.

“We believe this is not an ‘either/or’ question — and advocate a more nuanced approach,” Pyle said, maintaining that portfolios would gain resilience from exposure to both “quality companies that should outperform even if fiscal support disappoints” and “selected cyclical exposures that are likely to thrive as the timeline for widespread vaccine deployment advances.”

Aside from megacap tech stocks, the firm also pointed to semiconductor and software companies as benefiting from strong growth trends while facing few regulatory risks. The firm’s selective cyclical views encompassed mid- and small-cap U.S. equities, emerging-market stocks, and Asian ex-Japan stocks.


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