BlackRock Downgraded Its Outlook on U.S. Stocks but Remained Bullish on AI. What Has Changed in the Past Month?

BlackRock, the world’s largest investment firm, has downgraded its rating on U.S. stocks to neutral, abandoning its long-standing recommendation to maintain an overweight position in portfolios, according to Bloomberg. The research division, BlackRock Investment Institute (BII), attributed the decision to “potential volatility surrounding the deployment of AI infrastructure.”

Reducing the equity allocation should allow for an increase in investments in U.S. Treasury bonds, the agency reports. BII now recommends holding a higher proportion of short-term U.S. Treasury bonds than their weight in the benchmark portfolio (Overweight), and has upgraded its rating on long-term securities from Underweight to Neutral.

However, BlackRock believes that expectations of a tightening of the Fed’s policy have gone too far. According to Bloomberg, the market is forecasting at least three rate hikes of 0.25 percentage points each over the next 12 months. A revision of these estimates would boost the appeal of short-term bonds, the investment giant believes.

Just a month ago, in its fourth-quarter outlook, BII recommended maintaining an overweight position in U.S. stocks in the portfolio. At the time, BlackRock believed that strong corporate earnings, supported by advances in AI and favorable economic conditions, outweighed rising interest rate expectations. “We do not see any warning signs regarding AI as an investment theme,” the document published on September 15 stated.

In the same forecast, BII noted that AI costs are consuming an increasingly large share of operating cash flow, which is reducing free cash flow. At the same time, the institute emphasized that businesses’ ability to generate cash remained strong, as did their profits. However, even then, BlackRock warned that high interest rates could threaten investments in AI by making refinancing more expensive: companies that had borrowed cheaply would likely have to pay more on new debt, meaning they would need to grow their revenue more quickly.

BII’s September tactical recommendations were designed for a 6–12-month horizon, while its strategic recommendations were designed for a five-year horizon. Over the five-year horizon, the institute recommended maintaining a higher-than-baseline allocation to developed and emerging market equities in the portfolio. “We are managing short-term risk, not changing our core convictions,” explained BlackRock strategists, commenting on the downgrade of the U.S. equity recommendation (as quoted by Bloomberg).

The investment giant continues to favor AI-related companies and publicly traded infrastructure assets, the agency notes. “We maintain a positive outlook on AI and are prepared to increase the share of high-risk assets in the portfolio again once the outlook becomes clearer and attractive entry points emerge,” BlackRock said.

This article was AI-translated and verified by a human editor