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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."