Global asset management giant BlackRock has recently raised its outlook for the U.S. stock market, mainly driven by the easing of geopolitical risks and strong profit expectations from companies. The report notes that as the ceasefire prospects have become clear and shipping in the Strait of Hormuz has resumed, the overall economic impact has been brought under control. At the same time, profit forecasts for S&P 500 companies and for emerging markets have risen rather than fallen, indicating that market fundamentals remain solid.
Easing geopolitical risk and macroeconomic assessments
BlackRock’s report says that market uncertainty caused by conflicts in the Middle East is gradually declining. The key signals prompting it to once again increase its exposure to market risk are the tangible evidence that shipping in the Strait of Hormuz has resumed, and that the conflict’s long-term impact on the overall economy has been contained. The analysis team believes the threshold for those countries to break out in full-scale conflict again is extremely high, greatly limiting potential economic losses. As a result, market focus has been able to shift from risk-hedging sentiment back to fundamentals, creating a relatively favorable investment environment for the U.S. and emerging markets.
Upward revision to corporate profit expectations and technology stock valuations
Strong corporate earnings expectations are another major reason supporting this ratings upgrade. Based on FactSet data, first-quarter overall earnings for S&P 500 index constituent stocks are expected to grow by 12.6%. Among them, the information technology sector is forecast to see a 45% surge in earnings this year, but the sector’s year-to-date gains have been limited. This has pulled technology stocks’ valuation multiples relative to the other ten major S&P 500 sectors down to the lowest level since mid-2020, providing the market with potential allocation opportunities.
Adding to the U.S. and emerging markets, bullish on defense and aerospace
In terms of specific asset allocation, the BlackRock team emphasizes that during the first-quarter earnings season, it will place heavy focus on companies’ “profit margins” to assess their cost control and pricing power in the current environment. In addition, despite the overall geopolitical situation trending toward stability, BlackRock still likes thematic investment opportunities such as “defense and aerospace,” as part of a defensive allocation. Currently, within its global equity portfolios, the U.S. and emerging markets are the only two regions where BlackRock gives an increased rating, showing that capital is flowing toward specific markets with the highest visibility of earnings.
This article BlackRock raises its outlook for U.S. stocks, with war impacts fading, re-adding investment to the U.S. and emerging markets was first published on Chain News ABMedia.
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