The BlackRock Investment Institute is maintaining its “risk-on” investment stance, remaining overweight in U.S. equities despite acknowledging that core inflation is proving sticky.

What Is Driving BlackRock’s Positive Outlook On Equities?

The firm cites a softening labor market, which is expected to give the Federal Reserve justification to resume cutting interest rates this week, and the powerful artificial intelligence (AI) theme as key drivers for its positive outlook.

BlackRock’s base case scenario hinges on the cooling jobs market, as the firm believes the Fed’s monetary easing will bolster equities even as economic growth slows.

“A softening labor market gives the Fed space to cut, helping ease brewing political tensions from higher interest rates,” the weekly commentary notes. This environment, characterized by slowing activity without a recession, is seen as a supportive backdrop for U.S. stocks, which have already surged to new all-time highs.

AI Theme Will Continue Supporting The Markets

The AI theme remains a primary pillar of BlackRock’s strategy, continuing to fuel U.S. equity performance and corporate earnings.

The report highlights that the tech sector is responsible for over 40% of the S&P 500’s total return and a similar share of its earnings growth. BlackRock asserts that “the Al theme keeps providing near-term earnings support and could drive productivity in the long term”.

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BlackRock Pivots On Long-Term US Treasuries

While confident, the firm is also adjusting its broader market views. It has upgraded its position on long-term U.S. Treasuries from underweight to neutral, anticipating that yields could fall further in the near term as the Fed begins its cutting cycle.

BlackRock emphasizes its readiness to pivot its strategy if the labor market weakens more than anticipated or if a rebound in hiring reignites inflation.

Price Action

The SPDR S&P 500 ETF Trust ( SPY ) and Invesco QQQ Trust ETF , which track the S&P 500 index and Nasdaq 100 index, respectively, ended higher on Monday. The SPY was up 0.53% at $660.91, while the QQQ advanced 0.86% to $591.68, according to Benzinga Pro data.

On Tuesday, the futures of the Dow Jones, S&P 500, and Nasdaq 100 indices were higher.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga