BlackRock's Perspective: Unusual Upward Revisions in Profit Expectations and Three Reasons to Overweight Equities

Stock News
05/08

BlackRock observes sustained strength in U.S. corporate earnings. The trend of upward revisions to profit growth expectations for the S&P 500 has extended from 2025 into 2026—a development that is uncommon, as analysts typically lower their forecasts over time. BlackRock indicates that the AI theme and broadening profit growth support its risk-on stance. With the acceleration of AI infrastructure development, the firm holds an overweight view on U.S. and emerging market equities and is focusing on thematic investment opportunities in infrastructure, defense, and the energy sector. BlackRock notes that major structural shifts, such as geopolitical fragmentation and disruptive trends like AI, are increasingly driving investment outcomes, while U.S. corporate earnings momentum continues to strengthen. The impact of these trends is often uneven and reflected in stock returns. For instance, regarding geopolitical fragmentation, parts of Europe and Asia are more vulnerable to supply disruptions in the Middle East, which can push up inflation and hinder economic growth. In contrast, the U.S., as a net energy exporter, is less affected, while energy and commodity exporters in Latin American emerging markets are benefiting. This partly explains why U.S. stocks have led gains and repeatedly hit new record highs since the onset of conflict: the S&P 500 has risen 5%, while European and Japanese equities have fallen 5% and 4%, respectively. The institution highlights that another key factor underpinning the resilience of U.S. stocks is the strengthening disruptive trend of AI. However, AI is no longer a rising tide that lifts all boats. The market is focusing on how AI will transform business models and seeking signs that record spending on data centers, chips, and human capital is starting to yield returns. This has led to significant divergence in stock performance. Recent earnings reports from major tech companies show these firms are further raising already elevated capital expenditure plans, and the market is responding positively to companies that possess critical underlying technologies and can effectively convert investments into profits. This capital expenditure surge underscores booming demand for AI infrastructure and benefits semiconductor and hardware sectors in Taiwan and South Korea. Collectively, these factors support the firm's preference for U.S. and emerging market equities. For active investors, opportunities may also exist beyond the core players in AI development. For example, some financial firms that are early adopters of AI, as well as healthcare subsectors like imaging, diagnostics, and document management, are already demonstrating efficiency gains. As market participation broadens, other potential beneficiaries include value stocks and high-dividend-yield stocks, which currently trade at significant discounts and offer attractive yields, potentially driving valuation increases. Against the backdrop of heightened global fragmentation and ongoing efforts by nations to secure energy supplies, the firm expresses a preference for thematic investment opportunities, including in infrastructure and defense in Europe and other regions. BlackRock Investment Institute's view is based on the assumption of a reopening of the key shipping route, the Strait of Hormuz. The institution believes that if the strait does not reopen, even U.S. equities may not remain entirely immune to impacts. Similarly, if the recent rapid rise in oil prices persists, the U.S. economy could also face challenges.

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