Adrian JohnsonTLDR: BlackRock has upgraded its outlook on US stocks to overweight, citing the potential for a broadening of the AI-driven rally and expectations of interest rate cuts by the Federal Reserve. The asset manager believes that the S&P 500’s positive momentum will continue for the next six to 12 months as inflation cools and the Fed implements rate cuts. While BlackRock acknowledges that current market conditions may present uncertainties, such as a challenge to the consensus view of a soft landing for the US economy and a resurgence of inflation in the long term, the firm remains ready to pivot if necessary.
According to BlackRock’s Investment Institute, the stock market’s tech-driven rally, fueled by excitement over artificial intelligence, is expected to broaden out as inflation falls further, the Federal Reserve starts to cut rates, and the market’s rosy macro outlook remains intact. The strategists highlight that the market is pricing in a soft economic landing with inflation falling to 2% without a recession, and this narrative should support the rally over the tactical horizon and allow it to expand beyond tech.
BlackRock’s upgrade of US stocks to overweight comes as the benchmark S&P 500 index closed at a record high for the fifth consecutive trading day, boosted by a strong fourth-quarter GDP growth and falling inflation metrics. The strategists also noted the potential for interest rate cuts by the Fed as early as the first half of 2024.
However, BlackRock remains cautious amidst a wide range of uncertainties. The strategists agree with market expectations that inflation will fall near 2% this year, boosting upward momentum. However, they also argue that inflation is unlikely to stay at this level in the long run and may rise towards 3% in 2025 due to too-hot US wage growth. As a result, BlackRock’s strategists “stay nimble” and are “ready to pivot” if market conditions change.
Overall, BlackRock’s upgrade reflects their belief in the continued strength of the US stock market, driven by AI technology and supported by the expectation of future rate cuts. However, the firm remains cautious and recognizes that market conditions can change, necessitating a flexible strategy.