BlackRock Reveals Its 2025 U.S. Market Outlook
BlackRock expects the boom in artificial intelligence (AI) to continue driving U.S. stocks next year and supporting overall economic growth. However, the rising levels of U.S. public debt could pose a threat to its optimistic forecast for 2025.
Innovations in AI are likely to benefit U.S. stocks more than their European counterparts, while private markets will increasingly play a key role in financing AI-related infrastructure, according to the BlackRock Investment Institute, the research arm of the world’s largest asset manager.
While U.S. economic growth may slow somewhat next year, the Federal Reserve will likely be unable to significantly lower interest rates, as inflation remains stable and above the central bank’s target, the institute noted. It does not expect rates to fall below 4%, from the current range of 4.5%-4.75%.
Ongoing price pressures from factors such as geopolitical fragmentation and infrastructure spending could weigh on the bond market. Investors are likely to demand higher compensation for holding long-term government debt to account for inflation and the U.S. budget deficit. This will put upward pressure on long-term Treasury yields, which move inversely to prices.
Fixed Income and Bonds
“We are underweight long-term U.S. Treasury bonds, both tactically and strategically, and we see risks to our optimistic view in any rebound in long-term bond yields,” the report said.
BlackRock favors U.S. corporate debt over Treasury bonds, as well as public debt from other developed markets such as the U.K., where the Bank of England is expected to cut interest rates more than the market currently anticipates, according to the institute.
Regarding equities, the firm favors sectors such as technology and healthcare, while viewing assets like XAU/USD and Bitcoin as alternatives to public debt to offset stock market declines.
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