Investing.com — BlackRock (NYSE:BLK) predicts that the ongoing surge in AI will continue driving US stock performance and contribute to broader economic growth in the coming year, though rising levels of US government debt could pose risks to its optimistic 2025 projections.
According to the BlackRock Investment Institute, the research division of the $11.5 trillion asset management giant, advancements in AI are likely to provide greater benefits to US equities compared to European markets. The firm also expects private markets to play an expanding role in funding AI-related infrastructure.
“We stay risk-on … and go further overweight US stocks as the AI theme broadens out,” the institute wrote in its 2025 outlook, which reflects insights from senior portfolio managers and investment leaders at BlackRock.
Although US economic growth may slow slightly in 2025, BlackRock believes the Federal Reserve is unlikely to significantly cut interest rates due to persistently high inflation. It does not expect rates to fall below 4%, remaining near the current range of 4.5% to 4.75%.
Price pressures stemming from geopolitical tensions and infrastructure spending could also negatively impact the bond market.
The institute anticipates that investors will demand higher returns to hold long-term government bonds, given inflation and large US budget deficits. This could push long-term Treasury yields higher, as yields move inversely to bond prices.
“We are underweight long-term US Treasuries on both a tactical and strategic horizon – and we see risks to our upbeat view from any spike in long-term bond yields,” the report said.
In the equities space, BlackRock favors sectors like technology and healthcare. It also highlights gold and bitcoin as alternatives to government bonds, offering potential protection against stock market volatility.