(Bloomberg) - Bullish strategists at BlackRock Inc. are turning even more positive on U.S. and other developed-market equities.
The strategists have increased their overweight allocation on the stocks, citing strong earnings momentum and the market’s tilt to quality shares that could provide additional protection in portfolios.
“The market is too hawkish on the rates outlook, while solid growth -- especially in the U.S. -- and low real yields continue to support more attractive valuations,” the strategists including Brett Pybus and Karim Chedid wrote in a note. They don’t expect a gradual normalization in monetary policy to prove a major headwind in the second quarter.
JPMorgan Chase & Co. and other big U.S. banks kicked off the corporate earnings season this week and analysts expect profits across the S&P 500 to rise 5.5% in the first quarter, according to Bloomberg Intelligence.
READ: BlackRock Strategists Say Traders Are Wrong on Fed’s Rate Path
The BlackRock strategists are slightly less optimistic on Europe, expecting growth to be dented by the energy shock resulting from Russia’s invasion of Ukraine.
“We like the market’s cyclical tilt in the inflationary backdrop and expect the European Central Bank to only slowly normalize policy,” they said, trimming their overweight allocation to the region’s equities. The ECB left rates unchanged on Thursday.
Still, U.K. equities look attractive due to their cyclical exposure, the strategists said. They also increased their overweight allocation to Japan against the backdrop of supportive monetary and fiscal policies, and the prospect of higher dividends and buybacks.
By Sagarika Jaisinghani
