Updates with BlackRock's rating change
April 13 (Reuters) - BlackRock Investment Institute upgraded U.S. equities on Monday, joining other Wall Street brokerages in arguing that resilient corporate earnings, particularly in the technology sector, could cushion the fallout from the Middle East conflict.
The firm upgraded U.S. equities to "overweight" from "neutral", citing strong corporate earnings expectations and limited damage to global economic growth from the risks involving a spike in oil prices.
Optimism over a possible easing of the conflict has lifted the benchmark S&P 500 .SPX by nearly 8% from a seven-month low hit in late March, when fears that a surge in oil prices from the closure of the Strait of Hormuz would fuel inflation and deepen economic concerns weighed on the markets.
The S&P 500 advanced slightly on Monday as investors focused on the upcoming earnings season after weekend talks between the U.S. and Iran failed to deliver a deal to end the war.
"Tech's valuation premium has been eroded," Jean Boivin, head of BlackRock Investment Institute, said.
"At the same time, the tech sector is now seen posting earnings growth of 43% in 2026, up from 26% last year. These bright spots partly inform our upgrade to U.S. equities."
The asset manager also upgraded emerging market stocks, citing strong earnings.
BlackRock's comments follow similar views from J.P.Morgan and Morgan Stanley earlier.
"Our base case remains that any further escalation is unlikely to be sustained indefinitely, and that dips driven by geopolitical shocks should ultimately prove to be buying opportunities," J.P.Morgan strategist Mislav Matejka said.
The bank noted that the valuation premium for the so-called "Magnificent Seven" cohort of stocks — Nvidia NVDA.O, Apple AAPL.O, Microsoft MSFT.O, Meta META.O, Alphabet GOOGL.O, Amazon AMZN.O and Tesla TSLA.O — had narrowed sharply, with their forward price-to-earnings ratio falling to 1.2 times the S&P 500 from 1.7 times.
Morgan Stanley strategist Michael Wilson said the recent selloff in U.S. stocks looked more like a correction than the start of a prolonged downturn, and attributed such a view to improving earnings growth and healthier valuations.
The Wall Street bank said it continues to favor cyclical sectors such as financials, industrials and consumer discretionary goods, and quality growth stocks such as AI hyperscalers.
Earnings expectations have continued to increase despite the conflict. Estimates for first-quarter profit growth at S&P 500 companies stood at 13.9% as of April 10, compared with the estimate of a 12.7% rise before the conflict began, LSEG I/B/E/S data showed.
Goldman Sachs also struck a similar tone in early March, warning of near-term "correction risks" to global stocks but said there was little room for a bear market.
(Reporting by Purvi Agarwal and Shashwat Chauhan in Bengaluru; Editing by Devika Syamnath and Shilpi Majumdar)
((Purvi.Agarwal@thomsonreuters.com))
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