BlackRock: Continues to Overweight US Stocks and Opportunities Related to Artificial Intelligence Themes

According to the Zhitong Finance APP, BlackRock believes that relying solely on US CPI and other single data points cannot make a comprehensive judgment on market trends. The firm expects large technology companies to continue to be key drivers of earnings growth in the US stock market. Therefore, they will continue to be overweight on US stocks and opportunities related to artificial intelligence themes.

BlackRock points out that due to the drag from technology stocks, the US stock market has fallen from historical highs. The market hopes that large technology companies will continue to exceed high earnings expectations driven by the artificial intelligence theme. However, the unexpected decline in US CPI in June has reignited market expectations for the Federal Reserve to cut interest rates soon, leading to a 3.7% rise in small-cap stocks that are heavily indebted and sensitive to interest rate changes. BlackRock expects that this rebound will not last long, as the Federal Reserve may keep interest rates high for a longer period in the presence of persistent inflationary pressures.

Currently, the structural transformation driving market changes is artificial intelligence and other factors. These transformations are driving a wave of transformation. BlackRock is closely monitoring the impact of these changes on corporate earnings in the second quarter. As shown in the chart below, it is widely predicted that earnings expectations for technology stocks in the S&P 500 index are much higher than other industry components in the index. Analysts expect that technology stocks in the S&P 500 index are expected to achieve an 18% year-on-year earnings growth in the second quarter, while earnings growth for other components is only 2%.

Although the forecast sets high standards for continued profitability for technology companies, BlackRock believes that these companies may be able to meet this goal. Before Nvidia discloses its highly anticipated financial performance at the end of August, the stock prices of these companies may experience some fluctuations. For example, in the Northern Hemisphere market, market volatility may increase due to weak summer trading activities, leading to sudden market downturns.

At the same time, some investors believe that capital expenditures in the field of artificial intelligence are too high, and large technology companies may not achieve the expected earnings growth, which could also impact technology stocks. In addition, potential further restrictions on chip trade by the US could also lead to a decline in the stock prices of major chip manufacturers. After the US election in November, any changes in trade or regulatory policies that may restrict the development of artificial intelligence could also affect the technology industry. Despite increasing pressure on the US stock market in recent weeks, Biden's announcement of withdrawing from the presidential race last weekend may bring more uncertainty to the stock market. The firm will closely monitor these risks, continue to overweight investment opportunities related to artificial intelligence themes, and view the current market's sudden pullback as a buying opportunity.

As analysts expect improvements in earnings in other industries, the earnings lead of the technology sector may narrow later this year. The rapid development of artificial intelligence is driving a transformation similar to past technological revolutions, while also promoting the development of other industries, including industrial, materials, energy, and healthcare sectors However, BlackRock believes that the rise in US small-cap stocks is not due to fundamental improvement in their profitability, but rather due to their higher sensitivity to high interest rates, and they have not directly benefited from structural transformation. For example, due to high interest rates, US small-cap stocks have seen a decline in earnings for five consecutive quarters.

In terms of regions, as rate cuts help promote economic growth and corporate earnings are improving, BlackRock remains cautious about the European market. In terms of industries, considering the robust balance sheets of banks, the bank sector was favored earlier this year, but the relative valuation of the banking sector seems somewhat high at the moment. The firm is optimistic about construction, utilities, and semiconductor companies that benefit from rate cuts and structural trends. Additionally, considering the relatively stable political situation after the UK general election, economic growth recovery may further boost valuations, and the firm is overweight on UK stocks