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BlackRock bets on AI-driven stocks rally but US debt clouds 2025 outlook
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BlackRock bets on AI-driven stocks rally but US debt clouds 2025 outlook
Dec 4, 2024 4:08 AM

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US stocks seen benefiting more than European shares

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Large US rate cut not expected

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US corporate debt preferred over Treasuries

By Davide Barbuscia

NEW YORK, Dec 4 (Reuters) - BlackRock ( BLK ) expects

the artificial intelligence boom to continue to boost U.S.

stocks next year and support economic growth more broadly,

although rising U.S. government debt levels could threaten its

upbeat 2025 forecasts.

Innovations in AI technology will likely benefit U.S. stocks

more than their European peers, while private markets will

increasingly play a key role in financing AI-related

infrastructure, the BlackRock Investment Institute, a research

arm of the world's largest asset manager, said on Wednesday.

"We stay risk-on ... and go further overweight U.S. stocks

as the AI theme broadens out," it said in a 2025 outlook report

based on views of senior portfolio managers and investment

executives at BlackRock ( BLK ), which manages $11.5 trillion in assets.

While U.S. economic growth may cool a little next year, the

Federal Reserve will likely not be able to meaningfully lower

interest rates as inflation remains sticky and above the central

bank's target, the institute said. It does not expect interest

rates to go below 4% from their current 4.5%-4.75% range.

Continued price pressures due to factors such as

geopolitical fragmentation and infrastructure expenditure could

weigh on the bond market.

Investors will likely demand higher compensation to hold

long-term government debt to account for inflation and wide U.S.

deficits, it said. This will put upward pressure on long-term

Treasury yields, which move inversely to prices.

"We are underweight long-term U.S. Treasuries on both a

tactical and strategic horizon - and we see risks to our upbeat

view from any spike in long-term bond yields," it said.

BlackRock ( BLK ) prefers U.S. corporate debt over Treasuries, as

well as government bonds in other developed markets such as the

United Kingdom, where the Bank of England will cut interest

rates more than what the market is pricing, the institute said.

In stocks, it favors sectors such as tech and healthcare,

while it sees assets like gold and bitcoin as alternatives to

government bonds to offset stock market declines.

BlackRock ( BLK ) this week announced plans to buy credit investment

manager HPS Investment Partners for about $12 billion, in a deal

that will further its offerings in private credit, a key area of

growth for the New York-based asset manager.

"Private markets can offer exposure to early-stage growth

companies driving AI adoption and to vital infrastructure

projects," the BlackRock Investment Institute said.

"In private markets, we stick to our long-term preference

for infrastructure equity due to attractive relative valuations

and mega forces," it said. "For income, we prefer direct lending

given more attractive yields in private credit."

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