BlackRock strategists have turned increasingly bullish on U.S. stocks, raising them to overweight because fiscal stimulus is "supercharging U.S. earnings growth expectations."
Kate Moore, BlackRock's chief equity strategist, said that the firm thinks "the fundamental story is the best it's been, which is surprising given how far we are into this cycle."
Even though the market has retraced much of its February losses, BlackRock's team believe the impact of tax law changes and company spending plans are still underappreciated by investors. They expect earnings growth and dividends to fuel returns, in a market that already has historically high valuations.
"We remain very constructive on equities in general," said Moore. "The U.S. just got an injection of stimulus that no place else in the world did." As a result, the strategists cut back their rating on Europe to neutral.
Moore said BlackRock has had a high overweight on stocks relative to fixed income, but the firm was waiting for the fourth quarter earnings period to get more tangible information on the impact of U.S. corporate tax cuts and stimulus.
"We were encouraged by the strong top line numbers going into the fourth quarter, but now they're supercharged by the tax cut and fiscal stimulus," she said. Earnings growth for the S&P 500 Index was 15 percent in the fourth quarter, and sales growth was the highest in six years.