A less market-friendly Trump, AI earnings misses and surging bond yields are three triggers that would change BlackRock’s bullish stance on stocks.
At the end of last year, BlackRock’s Investment Institute upped its conviction for US equities outperforming in 2025.
Although the strategists have not yet changed their view, they’ve identified three areas that would make them re-evaluate their pro-risk outlook.
“We think U.S. equity gains could roll on,” the strategists said in a recent note. “Yet an economic transformation and global policy shifts could push markets and economies into a new scenario from our 2025 outlook.”
Trump cuts taxes but not spending
It is widely expected Trump will roll back financial regulation, cut government spending and rebalance global trade to address the country’s trade deficit worries.
While this more market-friendly approach is expected to improve economic growth and reduce budget deficits, there is a chance the policy changes go too far.
“In a less market-friendly approach, plans to extend tax cuts alongside large-scale tariffs could deepen deficits and stoke inflation,” the BlackRock strategists said.
“More broad-based tariffs could strengthen the U.S. dollar, fuel inflation and call for high-for-longer interest rates.”
“This plan would clash with Trump’s calls for a weaker dollar to boost US manufacturing and his push for rate cuts.”
Earnings fail to justify lofty tech valuations
The second trigger BlackRock flagged is a deterioration in investor sentiment due to earnings misses from the big US tech companies.
“The “magnificent seven” of mostly tech companies are still expected to drive earnings this year as they lead the AI buildout,” the strategists said.
“Their lead should narrow as resilient consumer spending and potential deregulation support earnings beyond tech.”
“While earnings might surprise to the upside, any misses could renew investor concern over whether big AI capital spending will pay off and if high valuations are justified – even if we think valuations can’t be viewed through a historical lens as an economic transformation unfolds.”
Surging bond yields
Term premium is rising from negative levels and has reached its highest in a decade, according to data from LSEG Datastream.
Although BlackRock has been expecting bond yields to climb as investors demand more premium to compensate the risk of holding longer-dated paper, the strategists warned that a sudden jump creates risks.
“We’re watching for elevated vulnerabilities in financial markets – including an already jittery bond market,” they said. “The surge in UK gilt yields shows how concerns about fiscal policy can drive term premium – and bond yields – higher.”
“The refinancing of corporate debt at higher interest rates is another risk,” they added. “It could challenge the business models of companies that assumed interest rates would remain low.”
“But many companies have refinanced debt without defaulting since the pandemic given strong balance sheets.”
