BlackRock: The artificial intelligence theme seems to continue driving the strength of the US stock market

According to the Zhitong Finance APP, BlackRock has released a research report stating that although BlackRock expects a supply-driven economic contraction in the United States, it believes that significant forces such as artificial intelligence, increased fiscal spending, and higher interest rates are creating specific opportunities. This has led BlackRock to maintain a positive outlook on developed market equities, although more volatility may be expected in the future. European financial stocks have risen by 20% due to the high interest rate environment, and the Spanish stock market is favored due to its low exposure to U.S. tariffs (only 5% of exports are directed to the U.S.). Gold has outperformed U.S. Treasuries as a safe-haven asset, potentially benefiting from increased demand due to new banking regulations.

Key Points from BlackRock:

BlackRock has previously stated that it expects this year's trade conflicts to lead to a supply-driven economic contraction in the United States, which means that corporate earnings expectations may be further downgraded. A sharp economic slowdown could stimulate policy changes, but this is not guaranteed, so investors need to remain flexible. Earnings reports help track damage and reveal specific opportunities. The theme of artificial intelligence seems likely to continue driving strength in the U.S. stock market, European banks may benefit from higher interest rates, and gold may be more suitable than U.S. Treasuries as a diversification investment tool.

Downside Potential

S&P 500 Index Earnings Expectations Revision vs. Manufacturing PMI (1992-2025)

(Note: The left axis represents the percentage change in three-month earnings expectations, while the right axis represents the ISM Manufacturing PMI index; a PMI below 50 indicates contraction in manufacturing activity, while above 50 indicates expansion.)

Source: BlackRock Investment Institute, data from LSEG Datastream, May 2025

BlackRock expects that in the short term, microeconomic conditions will reflect macroeconomic trends: the downward revision of U.S. GDP forecasts may lead to further downgrades in U.S. corporate earnings expectations.

LSEG data shows that analysts have revised the overall earnings growth expectation for the S&P 500 index down from 14% in January to 8.5%, a decline slightly larger than the average year. When economic activity contracts, earnings expectations are often significantly downgraded (see chart). This is why BlackRock expects the recent upward trend in the U.S. to potentially reverse quickly.

However, BlackRock believes that in the context of a rapid reduction in high tariffs between the U.S. and China, economic activity may rebound quickly, and significant forces are releasing specific opportunities across various industries and regions, which has led BlackRock to maintain a positive outlook on developed market (DM) equities.

LSEG data shows that the theme of artificial intelligence drove a 30% earnings growth for the "Seven Giants" (mainly large tech companies) in the first quarter, while other companies in the market saw only 8%. Like BlackRock, analysts expect the strength of tech stocks to continue.

As BlackRock tracks the impact of supply shocks, it has identified three key themes in the first quarter earnings reports First, according to Alphasense data, all first-quarter earnings calls have discussed for the first time the shift of production to the United States or countries with good relations with the U.S., and some companies are now providing timelines.

Second, as supply chains adjust, many companies seem prepared to accept higher input costs. External estimates show that tariffs will reduce net profits by 10%-20%.

Third, data from Bank of America and FactSet indicate that 60% of companies updating their spending plans currently have guidance below consensus forecasts, up from 40% at the beginning of the year, but still below the 71% during the pandemic. However, certain industries still present opportunities. For example, large tech companies are confirming or increasing investments related to artificial intelligence, and first-quarter results show that U.S. companies are starting from a strong position.

In Europe, infrastructure and defense spending plans have prompted BlackRock to upgrade its rating on European stocks to neutral. However, the execution of these plans is key — the new German Chancellor's coalition support is limited, highlighting potential obstacles. Since the announcement of tariffs on April 2, the performance of the European Stoxx 600 index has been roughly on par with the S&P 500 index, and the 2025 European earnings expectations have dropped from 8% in January to 3.5%. However, this masks the differences. Due to persistently high yields and strong corporate and household balance sheets, financial stocks have risen more than 20% this year. Since the beginning of 2025, BlackRock has been optimistic about Spain due to its strong growth and involvement in sectors like finance, utilities, and infrastructure that benefit from significant strength. Trade data shows that the Spanish stock market is also less affected by U.S. tariffs: only 5% of its exports are directed to the U.S., below the EU average. The Japanese stock market is another highlight: ongoing corporate reforms have led BlackRock to increase its holdings in Japanese stocks on an unhedged currency basis.

Structural changes also require selective investment in other asset classes. Since April 2, gold has been better at buffering geopolitical risks than other traditional safe-haven assets. Bloomberg data shows that gold has continued to soar, while long-term U.S. Treasuries and the dollar have unusually declined in sync with the stock market. According to new regulations, Bank of America will soon be able to treat gold as a high-quality asset on its balance sheet, which could drive demand and make gold a core holding asset.

Major Predictions

Tracking Five Major Forces

The immense forces are significant structural changes that impact current and future investments. As key drivers of a new regime characterized by intensified macroeconomic and market volatility, they alter long-term growth and inflation prospects and are expected to trigger substantial shifts in profitability across economies and industries. This creates significant opportunities and risks for investors.

1. Demographic Differences: The world is divided into aging developed economies and youthful emerging markets, each with different impacts.

2. Digital Disruption and Artificial Intelligence (AI): Technology is changing the way BlackRock lives and works.

3. Geopolitical Fragmentation and Economic Competition: As the world splits into competing blocs, globalization is being rewired.

4. The Future of Finance: Rapidly evolving financial architectures are changing how households and businesses use cash, borrow, transact, and seek returns.

5. Transition to a Low-Carbon Economy: This transition, as energy systems are rewired, will drive massive capital reallocation