BlackRock upgrades outlook for US stocks on earnings momentum

(Reuters) - The world's biggest asset manager BlackRock Inc <BLK.N> upgraded its view on U.S. stocks, citing very strong earnings momentum, while cutting European stocks to neutral.

In a note on Monday, BlackRock's global chief investment strategist Richard Turnill pointed to tax cuts in the United States and government spending plans as driving earnings growth and said the ratio of earnings upgrades to downgrades for U.S. large-capitalization companies was at its highest since records began in 1988.

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A trader looks at a screen that displays the Dow Jones Industrial Average on the floor of the New York Stock Exchange, (NYSE) in New York, U.S., February 5, 2018. REUTERS/Brendan McDermid
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Feb. 5, 2018. U.S. stocks plunged, sending the Dow Jones Industrial Average down almost 1,600 points, as major averages erased gains for the year.�Photographer: Michael Nagle/Bloomberg via Getty Images
A trader works on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange on February 5, 2018 in New York. Wall Street stocks endured a brutal session Monday, with the Dow seeing one of its steepest ever one-day point drops, as the heady bullishness of early 2018 gave way to extreme volatility. / AFP PHOTO / Bryan R. Smith (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Feb. 5, 2018. U.S. stocks plunged, sending the Dow Jones Industrial Average down almost 1,600 points, as major averages erased gains for the year.�Photographer: Michael Nagle/Bloomberg via Getty Images
A monitor displays stock information on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Feb. 5, 2018. U.S. stocks plunged, sending the Dow Jones Industrial Average down almost 1,600 points, as major averages erased gains for the year.�Photographer: Michael Nagle/Bloomberg via Getty Images
NEW YORK, NY - FEBRUARY 05: Traders work on the floor of the New York Stock Exchange (NYSE) on February 5, 2018 in New York City. Following Fridays's over 600 point drop, the Dow Jones Industrial Average briefly fell over 1500 points in afternoon trading. (Photo by Spencer Platt/Getty Images)
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Feb. 5, 2018. U.S. stocks plunged, sending the Dow Jones Industrial Average down almost 1,600 points, as major averages erased gains for the year.�Photographer: Michael Nagle/Bloomberg via Getty Images
NEW YORK, NY - FEBRUARY 05: Traders work on the floor of the New York Stock Exchange (NYSE) on February 5, 2018 in New York City. Following Fridays's over 600 point drop, the Dow Jones Industrial Average briefly fell over 1500 points in afternoon trading. (Photo by Spencer Platt/Getty Images)
NEW YORK, NY - FEBRUARY 05: Traders work on the floor of the New York Stock Exchange (NYSE) on February 5, 2018 in New York City. Following Fridays's over 600 point drop, the Dow Jones Industrial Average briefly fell over 1500 points in afternoon trading. (Photo by Spencer Platt/Getty Images)
NEW YORK, NY - FEBRUARY 05: Traders work on the floor of the New York Stock Exchange (NYSE) on February 5, 2018 in New York City. Following Fridays's over 600 point drop, the Dow Jones Industrial Average fell over 300 points after the Opening Bell. (Photo by Spencer Platt/Getty Images)
NEW YORK, NY - FEBRUARY 05: Traders work on the floor of the New York Stock Exchange (NYSE) on February 5, 2018 in New York City. Following Fridays's over 600 point drop, the Dow Jones Industrial Average fell over 300 points after the Opening Bell. (Photo by Spencer Platt/Getty Images)
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Turnill said the "swoon" in equity markets in early February made U.S. valuations look more attractive, pushing the company's three-month view on U.S. stocks to "overweight," from neutral. It is BlackRock strategists' first outright positive reading on U.S. stocks since May 2016.

"We believe the coming positive effects of new U.S. tax and spending plans are still underappreciated by markets," BlackRock's Turnill said in the note.

"We find earnings growth matters more than valuations over shorter time horizons at this stage of the bull market," Turnill said, adding:

"Economic strength was already changing the tone of earnings momentum, but U.S. tax cuts and government spending plans lit a fire under the trend."

Turnill noted that while earnings momentum in Europe was robust, it lagged other regions and said the euro's strength is a "source of pain."

The S&P 500 <.SPX> index is up more than 2 percent this year, while Europe's STOXX 600 <.STOXX> is down nearly 3 percent, in terms of price.

(Reporting by Trevor Hunnicutt, Kit Rees and Thyagaraju Adinarayan; Editing by Alistair Bell)

 

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