US stocks upgraded to overweight by the world's largest asset manager on economic-growth outlook

• An accelerated restart to the economy in 2021 and structural growth trends already in place will spur a continued rise in US stocks, BlackRock said in a note on Monday.
• Investors should look through any near-term volatility caused by rising daily COVID-19 cases as the distribution of COVID-19 vaccines is just months away, BlackRock said.
• "We upgrade US equities to overweight, with a preference for quality large caps riding structural growth trends, as well as smaller companies geared to a potential cyclical upswing," BlackRock said.
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US stocks were upgraded to overweight by the world's largest asset manager on Monday.

BlackRock, which managed $7.8 trillion in assets as of September 30, said in a note that it expects the US stock market to benefit from structural growth trends and a cyclical upswing in 2021 as the economic recovery begins to accelerate.

"We upgrade US equities to overweight, with a preference for quality large caps riding structural growth trends, as well as smaller companies geared to a potential cyclical upswing," BlackRock said. The asset manager said investors should look through any market volatility caused by a continued surge in daily COVID-19 cases and instead focus on the longer term, as a vaccine for the virus is likely just months away from being made available to the masses.

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"Positive vaccine news reinforces our outlook for an accelerated restart during 2021, reducing risks of permanent economic scarring," BlackRock said, adding that they expect the cumulative economic hit from COVID-19 to be "just a fraction" of that seen during the Great Recession of 2008.

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BlackRock favors US stocks over global counterparts due to their high concentration in technology and healthcare companies, which are financially healthy and are also benefiting from some key structural trends that show no signs of slowing down.

For example, information technology and communication services represent almost 40% of the market value of the MSCI USA Index, compared to just 11% in Europe, BlackRock observed. On top of that, Europe has a high allocation to financial stocks, which BlackRock sees challenged by low interest rates. For these reasons, combined with renewed COVID-19 restrictions set to limit economic growth over the coming months, BlackRock downgraded European stocks to underweight.

Key risks to BlackRock's bullish view on US stocks include the winding down of emergency support facilities from the Fed and US Treasury, which highlights the potential for a lack of additional fiscal relief from Congress, according to the note.

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