BlackRock downgrades U.S. stocks, citing rising coronavirus cases and stimulus running out

Published Mon, Jul 6 20202:38 PM EDT

The massive run-up in U.S. equities from the late-March lows could slow down as coronavirus cases rise at a record pace, according to BlackRock. The asset-management giant downgraded U.S. stocks to neutral from overweight. That rating change comes after the S & P 500 soared more than 44% from an intraday low set on March 23 amid expectations of a swift economic recovery following the coronavirus-induced shutdown. "We downgrade U.S. equities to neutral after a strong run amid surging COVID 19 cases," said Mike Pyle, global chief investment strategist at BlackRock Investment Institute, in a note to clients. "We see a surge in COVID 19 cases in the U.S. potentially slowing the activity restart at a time when fiscal stimulus is at risk of waning." Data compiled by Johns Hopkins University shows confirmed virus cases in the U.S. have surged to nearly 2.9 million , with several states reporting sharp upticks in coronavirus-related hospitalizations. This resurgence in coronavirus cases has led several states to roll back some reopening measures. This spike also comes as several pieces of fiscal aid, including additional unemployment benefits, are set to expire later this month. "A slower economic restart could further dampen the earnings prospects of U.S. companies," said Pyle. However, Pyle remains hesitant about underweighting U.S. equities, noting "the U.S. market has a high concentration of quality companies especially in technology and communication services that are set to benefit from structural trends accelerated by the pandemic." Amazon and Netflix — two companies that have benefited from consumers spending more time at home — led the way higher on Monday, rising more than 2% each and hitting all-time highs. What should clients do instead? In the U.S., BlackRock recommends buying those quality companies. Elsewhere, the firm is getting bullish on European equities, upgrading them to a "tactical overweight." "The region offers more attractive cyclical exposure than emerging markets due to its public health measures and ramped-up policy response, in our view," the firm said.

Scott Mlyn | CNBC

The massive run-up in U.S. equities from the late-March lows could slow down as coronavirus cases rise at a record pace, according to BlackRock.

The asset-management giant downgraded U.S. stocks to neutral from overweight. That rating change comes after the S&P 500 soared more than 44% from an intraday low set on March 23 amid expectations of a swift economic recovery following the coronavirus-induced shutdown.