BlackRock released a statement recommending investors to moderately overweight US stocks before the end of the year, with a focus on financials, consumer discretionary, and specific technology sectors. At the same time, BlackRock will reduce its holdings in defensive sectors (especially necessities) to provide funds for the overweighting of stocks. In terms of bonds, opportunities still exist in corporate bonds, securitization, and other forms of credit products, but investors should be cautious about long-term US treasuries. Due to the difficulty of absorbing a large amount of bond supply in the market, long-term US treasuries may face greater challenges in the coming months or even years. With the dust settling after the US election, investors have started to shed their wait-and-see attitude and are now competing to invest in US stocks and other risk assets. The S&P 500 index rose by 4.7% last week, marking its best weekly performance since October 2022. This week, the S&P 500 index continued to rise at the close of the day driven by optimistic market sentiment following the release of the Federal Reserve's minutes from its November monetary policy meeting. BlackRock stated that behind this recent rise is the market's expectation of stronger US economic growth and a more relaxed regulatory environment (especially in financial regulation). Now that the results of the US election are out, the market reaction has calmed down. As the year-end approaches, how should investors view the future trend of the US stock market before the end of the year? BlackRock believes that the following three points are worth noting: US stocks continue to strengthen, cyclical stocks lead the way, and the yield curve steepens further. Despite a cumulative increase of 25% in US stocks since the beginning of the year (as of November 20), which presents a significant premium compared to other markets and historical levels, BlackRock believes that this upward trend may continue in the short term. In addition to consumer market growth and loose monetary policy, US stocks may also benefit from seasonal strength and optimistic expectations for more fiscal stimulus policies and regulatory relaxation measures in the market. On individual stocks, BlackRock expects cyclical stocks to continue to lead, which is consistent with the trend seen in the past few months. BlackRock believes that the pace of US economic growth may not be too great and is currently maintained at a healthy level of 2.5% to 3%, but investors may continue to favor companies or sectors with operational leverage (ability to increase revenue by increasing income). This includes consumer discretionary sectors and financial sectors (as shown in the figure) that have led since the election. The financial sector not only benefits from strong US economic growth and a steep yield curve, but also may see an even more relaxed regulatory environment under Republican rule, further boosting its performance. BlackRock mentioned that in addition to the stock market, the market environment for bonds and interest rates may also be affected, especially long-term US treasuries. The main reasons are that in the background of a strong US economy, additional stimulus measures may alter the pace and extent of future rate cuts by the Federal Reserve; secondly, in addition to monetary policy, tax cuts and/or stimulus measures financed by debt may further exacerbate the already historical high US fiscal deficit, thereby increasing the issuance of US government bonds. It is worth noting that although US bond yields have rebounded from their lows in September, the extra yield compensation (term premium) that investors receive for bearing long-term risks is still at a moderate level compared to historical levels. If bond investors begin to anticipate larger multi-year fiscal deficits, then the yield on long-term bonds may accelerate further, surpassing that of short-term bonds, thereby creating a steeper yield curve. Source: LSEG Datastream, MSCI, and BlackRock Institute, data as of November 10, 2024.