Equity Market Outlook

Taking stock

If 2025 was a year of mega caps and momentum, 2026 begins with refrains of reversal, rotation and recalibration.

The AI mega force is unmatched in its might, in our view, igniting large and lasting shifts in the long-term profitability outlook across economies. However, AI is also showing signs of recalibration as the opportunity set broadens beyond the prevailing leaders.

This expansion ultimately means investors have greater choice for sourcing growth. Importantly, we see that choice extending well beyond AI and the U.S., as pockets of opportunity present themselves around the globe.

Investing in a fast-changing AI landscape

The market has moved away from treating the AI theme as uniformly positive for technology economics. Investors today are digging deeper and filtering companies through more demanding questions. This reassessment has contributed to greater dispersion within technology and beyond, marking a shift from recent years when broad exposure to powerful secular themes such as AI was often sufficient for optimizing growth.

Jeff Shen, Co-Head and Co-CIO of Systematic Active Equities, and Philip Hodges, Lead of Dynamic Factor Rotation Strategies and Co-Lead of Systematic Macro, believe today’s environment calls for greater selectivity and adaptability, as multiple crosscurrents intersect to reshape the opportunity set.

The makings of a broader U.S. stock market

Calls for market broadening are not new. But they may have been early as the mega-cap market leaders in the S&P 500 continued to drive returns for longer than many expected.

While this cohort continues to lead earnings growth, it is not leading market returns this year. Fundamental Equities Global CIO Carrie King says markets are anticipatory, and some of the recent rotation in returns may reflect investor expectations of broadening fundamental strength. She expects market broadening to come not in large swaths but in a growing number of interesting pockets, making the coming months and years a particularly exciting time for active stock selection.

A global tour of stock market value

After a year of impressive gains for global equities, “bargains” can be hard to find. Helen Jewell, BlackRock Fundamental Equities’ International CIO, sees some surprise pockets of value for those willing to hunt the globe.

Her global tour of stock market value takes her to defense stocks and banks in Europe; to interesting corners of the UK, including banks and small caps; and to Latin America in emerging markets. She believes an active approach is required to achieve more balanced portfolios with the wherewithal to weather the types of geopolitical gyrations already seen at the start of 2026.

An election boost for Japan equities

Japanese equities outperformed global markets over the past five years ― a trend that was accelerated after the recent election. Can the positivity continue? It can, according to Helen Jewell and Rie Shigekawa, a member of the Japan Large Cap Equities team within BlackRock Fundamental Equities.

Japan already had tailwinds in supportive monetary policy and concerted efforts around corporate transformation. They believe these, along with a pro-investment government, can underpin continued earnings growth in Japan. The opportunity, they say, lies in individual stock selection that scans across sectors and sizes to reveal companies that may be well-poised to benefit from the transformations taking place.