Can stocks maintain their drive through the year’s final quarter? AI tailwinds appear to have staying power, even in unexpected places, according to our alpha-seeking equity investors. Their Q4 outlook explores momentum’s new look, the benefit of being rational amid irrational exuberance, and mega force-driven opportunities in Europe and Asia.
Equity Market Outlook
At a glance
01.
Navigating market change
Factors matter to return objectives, but their makeup is being disrupted in the current environment. A dynamic approach is needed to navigate the rotations.
02.
A time for rational exuberance
Irrational exuberance can lead to market mispricings, a potential boon for fundamental-based stock pickers. And we see three sectors ripe for picking.
03.
The hunt for hidden alpha
AI has been driving returns year-to-date, even in some surprising places. Two underappreciated beneficiaries: clean energy and Spain.
04.
Asia’s role in making history
Mega forces are reshaping economies and markets, and Asia is home to companies poised to contribute to the transformation in three key areas.
Taking stock
Artificial intelligence (AI) has been a source of stock market excitement since ChatGPT burst onto the scene in November 2022 and revealed the previously inconceivable capabilities of generative AI.
It is no surprise then that each of this quarter’s commentaries carries a familiar refrAIn, from how AI is upending traditional expectations for factors such as momentum, quality and value, to revealing underappreciated AI opportunities in clean energy and in places like Spain and parts of Asia.
Our active investors know that the AI opportunity is not static but continuously evolving alongside the technology itself, making this an extraordinary time to be an alpha seeker.
We enter the last quarter of the year with an outlook for the AI engine to continue fueling markets, but with a potential broadening of the opportunity set within and beyond AI.
Momentum’s new look: Navigating market change
The momentum factor’s headline performance has mirrored the strength of equity markets, sustaining an extended run alongside themes such as the surge of AI innovation and adoption. Unlike other style factors, momentum is inherently adaptive, evolving to capture prevailing performance trends. But that adaptability can leave investors uneasy, as long stretches of outperformance often raise concerns about crowding and stretched valuations.
Jeff Shen, Co-Head and Co-CIO of Systematic Equities, and Philip Hodges, Co-Lead of the team’s Macro Group, see an evolution in the factor’s composition that allows it to capture a broader phase of the AI trade, making the case for continued momentum strength.
A time for rational exuberance in U.S. equities
Is “irrational exuberance” sending U.S. stock prices to levels inconsistent with their underlying fundamentals? Fundamental Equities Global CIO Tony DeSpirito says “perhaps in spots,” but he and colleague Carrie King, U.S. and Developed Markets CIO, believe this sets up a favorable backdrop for stock selection.
They suggest now is a time for “rational exuberance” ― a moment to lean into the virtues of bottom-up stock analysis and selection to avoid the pitfalls of psychological contagion and crowded positioning that typically arise amid pockets of speculative behavior ― and often lead to mispricings. They see three areas particularly ripe for stock picking: technology, healthcare and financials.
The hunt for hidden alpha
Massive capex spending by U.S. tech giants to support the AI buildout is having implications for equity investors beyond the tech sector ― and well beyond the U.S.
Helen Jewell, BlackRock Fundamental Equities’ EMEA CIO, looks at two surprising winners of 2025, and their potential to continue their ascent. These two seemingly unrelated parts of the market have one thing in common: a link to the big AI spending. The first is clean energy, as the vast power demands to run AI data centers will require all forms of energy. The second is Spain, where earnings growth has been partially driven by investments in the electricity grid to support the nation’s emergence as a European data-center hub.
Asia’s current role in making history
Economies and financial markets are being transformed today by powerful mega forces, including digital disruption and AI, the energy transition, and geopolitical fragmentation that is rewiring supply chains.
The significance of this will be clearer in five years when hindsight makes it easier to connect the dots. But Belinda Boa, BlackRock Fundamental Equities’ Emerging Markets CIO, says investors need not wait that long to capitalize on the opportunities, and sees the Asia-Pacific region contributing to and reaping benefits from the transformation. She identifies three main areas of interest for both local and global investors: AI and robotics; metals and mining; and advanced manufacturing.
Key questions this quarter
Why BlackRock Fundamental Equities?
With decades of experience and a local presence around the world, our fundamental equity investors bring unique expertise to their discipline and deep, bottom-up insight that powers our mission to generate alpha for our clients.
Systematic Equities
For 40 years, our systematic equity investors have been harnessing data and technology to dynamically navigate and capitalize on investment opportunities in pursuit of consistent portfolio outcomes.