BlackRock remains optimistic on U.S. equities, driven by earnings growth broadening across sectors and AI's transformative impact.

BlackRock's latest market commentary emphasises the continued potential of U.S. equities, driven by broadening corporate earnings and the transformative influence of artificial intelligence (AI). The 'magnificent seven', a group of mega-cap technology companies, has led earnings growth over recent years, but forecasts suggest this dominance will extend towards other sectors, diversifying the growth landscape. Consumer spending and resilient economic growth underpin this optimism, with AI seen as a catalyst expanding earnings capacity beyond initial tech players to sectors like industrials and utilities. Analysts project U.S corporate earnings to see a notable leap in 2025, with several industries—including energy and financials—likely to benefit from evolving U.S policy measures like deregulation and energy permitting reforms. Such measures, implemented under President Donald Trump, may amplify corporate dealmaking and domestic energy production. Despite maintaining a favourable outlook on U.S. equities, risks such as rising term premiums, international trade tensions, and potential underperformance of major tech players must be addressed. BlackRock emphasises sticking with high-quality names and actively managing exposures across sectors. Central banks play a pivotal role in shaping the macroeconomic environment. While the Federal Reserve is expected to maintain steady rates, challenges like the Japanese yen's strength amidst the Bank of Japan's restrained policies and the European Central Bank's room for more rate cuts exist. Policymakers' caution in managing inflationary pressures reflects the globally elevated interest rate environment compared to pre-pandemic levels. For geographic allocations, BlackRock continues to favour U.S. equities over Europe, citing stronger growth and diversified earnings in the U.S. Europe, while showing improvements in earnings, faces geopolitical and structural challenges, making it less attractive despite pockets of opportunity in industrial and semiconductor sectors. Meanwhile, Japan emerges as another bright spot, supported by economic reforms and improving corporate returns, though subject to currency risks. Outside equities, the focus remains on sectors like infrastructure equity and private credit, owing to their promising relative valuations. In fixed income, BlackRock prefers medium-term over long-term credit given interest rate risks. Across sectors and geographies, flexibility and readiness to adapt to macro changes are crucial. AI, as a major economic transformation force, provides potential for new revenue streams, though sustainability of tech-related capital investments remains critical. Emerging market opportunities are approached cautiously, with selective focus on regions like India and Saudi Arabia, which align with structural growth themes. Conversely, China’s fiscal measures are seen as insufficient to fully counter economic challenges, necessitating vigilance in reallocating investments. Fixed-income prospects vary, with preference for UK gilts offering attractive yields, and a cautious stance on long-duration U.S. Treasuries due to long-term risks from geopolitical factors and persistent deficits. European investment grade and high-yield credit show relatively stronger valuations compared to U.S counterparts. Overall, BlackRock's report outlines a cautiously optimistic view for U.S. equities underpinned by earnings growth catalysed by megatrends like AI, while maintaining a vigilant stance toward unfolding macroeconomic and geopolitical risks. This balancing act between opportunity and caution defines its strategic positioning for 2025.