Traders at the New York Stock Exchange. (Photo: AP)

BlackRock, the world’s largest asset manager with $4.6 trillion in assets, has turned bullish on U.S. equities, reversing an underweight position to overweight.

In its latest Investment Directions note, released Thursday, BlackRock noted the staying power of the U.S. economy, expectations for future growth and stronger than expected inflation—all measured against a backdrop of global uncertainties.

“With mostly mixed data reported around the world, the resiliency in the U.S. economy has been a highlight.”

The stock market apparently paid little attention to BlackRock’s change of heart. Major U.S. stock market indexes were all moderately lower in afternoon trading and ended the session mixed but nearly unchanged, capping five straight weeks of gains. The S&P 500 and Nasdaq are now in the red, having erased all of this year’s gains. (U.S. stock markets are closed Friday for the Good Friday holiday.) Traders cited a decline in crude oil prices and UBS sell rating for Wells Fargo (WFC) shares, which slammed financial stocks.

BlackRock’s overweight rating for U.S. stocks was also based on “robust” demand for labor here and stronger hiring “finally translating into stronger consumer spending” as well as signs that manufacturers are starting to perform better.

BlackRock analysts more or less discounted the recent drop in U.S. wages  as a  reminder that full employment has not  yet been reached — as well as U.S. equity valuations which are now moderately above their 10-year average. “Those premiums are probably worth paying for given the relative economic strength of the United States compared to the rest of the world,” analysts wrote.

Among U.S. equities, BlackRock prefers value stocks — “still very cheap compared to their historical average”  — and high-quality shares.

In addition to U.S. stocks, BlackRock reversed its underweight rating for non-U.S. debt in developed markets to overweight, citing a halt in the appreciation of the U.S. dollar, which favors non U.S. dollar-denominated debt, and continued monetary easing by the European Central Bank.

Its only other overweighted bond sector is munis due to the “high quality and relatively low volatility.”

In contrast, BlackRock is underweight U.S. Treasuries and neutral on Treasury Inflation-Protected Securities (TIPS), which it noted can be a “good choice” for investors looking to protect their portfolios from rising inflation because inflation expectations are firming.

Among global stocks sectors, BlackRock is overweight consumer discretionary and technology — “two sectors that have good exposure to global growth — and is  turning positive toward energy stocks — “bargains could be found in this … asset class with valuations now trading at their lowest level in the past 20 years.”

The firm is neutral on health care, which has been “hard hit hard in recent market rotation” and underweight consumer staples and utilities because of “stretched” valuations.  

In terms of foreign stocks, BlackRock downgraded Japanese equities to neutral from overweight due to rising volatility since the Bank of Japan instituted negative interest rates in January and a stronger yen could hurt export earnings.

BlackRock is bullish on European equities, apparently having more faith in the ECB ‘s negative interest rate policy than Japan’s. “The bolder-than-expected” monetary policy in Europe, which also included expanded asset purchases and targeted refinancing operations to lower banks’ funding costs and encourage lending, “is bullish for European equities and credit in the near term,” according to BlackRock.

European stocks are also a good value given that their price-to-book trading is a little over half that of the U.S., BlackRock analysts wrote.

Within Europe, though, BlackRock is “cautious” on U.K. stocks ahead of the June referendum on EU membership.

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