AI to Propel US Stocks in 2025

BlackRock forecasts that artificial intelligence (AI) will remain a key driver of US stock market growth in 2025, contributing to broader economic expansion. However, the $11.5 trillion asset management firm warns that escalating US government debt could challenge its otherwise optimistic outlook.

US Stocks to Benefit More Than European Markets

According to the BlackRock Investment Institute, AI advancements will likely deliver stronger gains for US equities compared to European markets. The institute also predicts private markets will play a larger role in financing AI-related infrastructure, underscoring the technology's transformative potential.

"We remain risk-on and are further overweight on US stocks as the AI theme expands," the institute noted in its 2025 outlook, which integrates insights from BlackRock’s senior investment leaders.

Economic Growth, Inflation, and Federal Reserve Policy

While US economic growth is expected to decelerate slightly in 2025, BlackRock does not anticipate significant interest rate cuts from the Federal Reserve. Persistent inflation is likely to keep rates above 4%, close to the current range of 4.5% to 4.75%.

Rising geopolitical tensions and increased infrastructure spending may exert additional pressure on bond markets, further complicating the economic landscape.

Impact on Bonds and Alternatives

The report predicts that investors will demand higher yields to compensate for inflation and the growing US budget deficit. This could push long-term Treasury yields higher, as bond prices fall.

To mitigate potential volatility, BlackRock highlights technology and healthcare as favorable equity sectors, while recommending gold and bitcoin as alternatives to government bonds. Both are seen as viable hedges against potential stock market instability.

(Sources: investing.com, reuters.com)