BlackRock upgrades U.S. stocks, says AI-driven rally could broaden this year - MarketWatchMarketWatch Site Logo
BlackRock on Monday upgraded its overall outlook for U.S. stocks to overweight from neutral, as the world’s largest asset manager sees the S&P 500’s upward momentum continuing for the next six to 12 months amid cooling inflation and potential interest-rate cuts by the Federal Reserve.
The stock market’s tech-driven rally, fueled by investor excitement over artificial intelligence, should “broaden out as inflation falls further, the Fed starts to cut rates, and the market sticks to its rosy macro outlook,” said a team of strategists led by Jean Boivin, head of the BlackRock Investment Institute, in their weekly commentary research note on Monday.
“Markets are pricing a soft economic landing where inflation falls to 2% without a recession,” the strategists noted. “With markets tending to focus on one theme at a time, this narrative can support the rally over our tactical horizon and allow it to expand beyond tech.”
See: Stock-market rally faces Fed, tech earnings and jobs data in make-or-break week
U.S. stocks entered the new year with the wind of a stellar 2023 at their back, helped by encouraging economic data such as strong GDP growth in the fourth quarter and falling inflation metrics, with the latter possibly giving the Fed a green light to begin cutting interest rates as early as the first half of 2024.
The benchmark S&P 500 index SPX on Thursday closed at a record high for the fifth straight trading day, the longest streak of its kind since November 2021. In the month of January so far, the S&P 500 has advanced 3.3%, while the Dow Jones Industrial Average DJIA is up 1.7% and the Nasdaq Composite COMP has surged 4.1%, according to FactSet data.
However, Boivin and his team still “stay nimble” and are “ready to pivot,” as current market conditions could create a wide range of uncertainties, they said. For example, the strategists think the consensus view of a soft landing for the U.S. economy could be challenged later this year, and that inflation is still bound for a resurgence in the long term.
“We agree with markets that inflation will fall near 2% this year, helping the upward momentum extend into the year. Yet inflation is unlikely to stay there in the long run,” Boivin and his team said, citing “too-hot” U.S. wage growth that could make it difficult to keep the core inflation near the Fed’s targeted 2% level.
“That means inflation will likely roller-coaster up toward 3% in 2025,” they wrote.
See: Big Tech stocks look ‘exhausted,’ analyst warns. But these 100 ‘next-gen’ Nasdaq names appear poised to take off.
U.S. stocks finished higher on Monday with the S&P 500 rising to close at another record high as investors braced for a busy week packed with the Fed’s policy decision, earnings from megacap tech companies and a crucial U.S. employment report. The S&P 500 was up 0.8% to end at 4,927.93, while the Dow ended 0.6% higher and the Nasdaq Composite jumped over 1%, according to FactSet data.
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Isabel Wang is a Markets Reporter for MarketWatch.
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