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Q4 2026

Equity Market Outlook

SITUATIONS - change

At a glance

01.

Growth? Income? Both

It’s a new world for income-seeking equity investors. An active approach seeks to capture income without giving up growth potential.

02.

Key Qs for Q4

History bodes well for fourth quarters, but every year is different. Get answers to key questions for Q4 2026.

03.

Material matters

Mining companies are critical to the AI buildout. And capital discipline makes many of them attractive dividend payers.

04.

EMs beyond AI

Where to invest in emerging markets? Materials, industrials and financials may be three areas worth exploring.

Taking stock

Global equities have shown resilience this year even as critical market narratives continue to evolve. The key question as we enter the fourth quarter may be less about whether equities can rise and more about where to look for the next leg of returns.

Strong earnings and an opportunity set that is broadening beyond AI provide a constructive setup, in our view. Yet high expectations reinforce the importance of discipline, diversification and active stock selection.

Against this backdrop, senior members of our alpha-seeking equity platform share their perspectives in our Q4 Equity Market Outlook.

As the story evolves within the AI theme, new chapters are developing alongside and outside of it.

Finding equity income, keeping growth

The reach and influence of the AI theme continues to expand throughout the economy, with the opportunity spanning a growing set of adopters across industries. Yet even as the economic opportunity widens, the equity market remains concentrated in growth-oriented leaders.

For investors with an income objective, this presents a challenge: Leaning too heavily on higher-yielding assets or segments of the market can reduce exposure to growth opportunities, while broad equity exposure contributes less to portfolio income than it has historically.

One potential solution: A systematic, active approach that can combine multiple levers to balance income and growth. Dividend opportunities can be evaluated alongside prospects for capital appreciation, just as option income can be considered alongside the market exposure investors want to retain.

Q4 Qs: Capex, earnings and underappreciated equity opportunities

History suggests fourth quarters have been the strongest quarter of the year for U.S. stocks. Yet every year has a unique set of variables at play that could influence market outcomes.

For Q4 2026, those questions include when the massive spending on AI may show a return and whether the strong AI-driven earnings momentum seen so far this year can continue. The answer to both questions suggests a positive outlook. Investors from the Fundamental Equities Global Technology team are already seeing the capex bear fruit. And consensus analyst estimates are pointing to continued strong earnings in the U.S. and beyond, as we outline in our full Outlook.

What are our investors watching as potential risks? Geopolitical uncertainties, Fed policy and the effect of higher rates on long-duration assets, and the sustainability of earnings breadth beyond AI.

Materials: A ‘resource’ for growth and income

The mining sector sits at the foundation of many of the most important growth themes shaping the global economy.

While investor attention has often focused on AI models, semiconductor and the cloud, the physical infrastructure underpinning these technologies is highly dependent on metals and materials. Data centers require copper, steel, power capacity, batteries and transmission infrastructure, while electrification and grid upgrades demand vast quantities of copper, aluminum and other critical minerals. This is driving a new, commodity-intensive investment cycle.

Alongside this growth driver is another development in the mining industry over the past decade: greater capital discipline. With this change, the sector has shown a willingness to pay dividends, making it a compelling source of income and growth potential.

Emerging markets beyond AI

Emerging market (EM) equities have been turbocharged by AI investment, benefiting the companies that meet demand in the main bottlenecks of memory and power. That opportunity continues strong. Yet our active investors also see compelling opportunities beyond AI in EM.

Where are they finding them? They identify three areas:

1. Materials: AI, electrification and energy storage are increasing demand for commodities in areas where Asia plays a key role.

2. Industrials: EMs, particularly those in Asia, are home to large industrial companies that specialize in mining equipment, and these should also benefit from the capex boom associated with materials demand.

3. Financials: They see selective opportunities in quality banks that have greater growth prospects than many developed market peers as well as more attractive valuations. Many of these can be found in Eastern Europe.

Authors

Raffaele Savi
Global Head of BlackRock Systematic and Co-CIO of Systematic Active Equities
Jeff Shen, PhD
Co-Head and Co-CIO of BlackRock Systematic Active Equities
Carrie King
Global CIO of BlackRock Fundamental Equities
Egon Vavrek
Head of EM and Asia Core, BlackRock Fundamental Equities
Evy Hambro
Global Head of Thematic and Sector Investing, BlackRock Fundamental Equities
Robert Fisher, CFA
Equity Income Lead, BlackRock Systematic Active Equities

Key questions this quarter

What is the outlook for stock returns in Q4?

Using history as a guide would point to a positive outlook. Fourth quarters are typically the strongest quarter of the year for U.S. stocks, and historical patterns suggest strength in the first three quarters more often portends a positive final quarter than a giveback of gains. Quarterly data for the S&P 500 Index since 1978 shows the average return for all quarters is 3% versus 4.9% for fourth quarters. In years when the index was positive through September (37 out of 47 years), the fourth quarter return was positive 81% of the time.* Every year has a unique set of variables at play that could influence market outcomes, yet our 2026 outlook is constructive.

* Analysis from BlackRock Fundamental Equities with data from FactSet as of Aug. 26, 2026.

Is now a good time to invest?

Our investors retain a constructive outlook for equities. Earnings trends are strong across sectors and geographies, supporting the case for exploring a larger cross-section of investment themes. At the same time, volatility is likely amid ongoing geopolitical uncertainty and high investor expectations. While unsettling, volatility also creates opportunity. They see these opportunities in both the AI theme and in areas well beyond it across global equity markets, suggesting a favorable backdrop in which to invest.

Is it possible to source both growth and income from equities?

In a concentrated market led by growth-oriented stocks, it can be harder to source equity income, especially amid lower dividend yields at the index level. This suggests it takes an active approach to source income without sacrificing much of the market’s growth potential. Our investors also see the materials and mining sector as an interesting area for growth (given demand from the AI buildout) and income (given an industry-level focus on capital discipline and return of excess cash to shareholders).

Where are the equity opportunities outside the U.S.?

Among developed markets, our investors identify Japan and Europe as interesting opportunities. Japan is in the midst of structural reform with concerted support from the government and corporate sectors, yet many companies still trade at attractive valuations. In Europe, earnings are on an upswing, led by the energy sector. Relative to the U.S., Europe has a greater share of companies that stand to benefit from the AI-driven focus on energy and infrastructure spending. And more than half of European revenues come from outside the continent, making for a diversified set of equity drivers.

Are emerging market equities a good investment?

On the global stage, emerging markets show the strongest earnings outlook based on consensus estimates. While strong EM earnings have been driven primarily by a small group of AI-powered leaders in select countries, our investors see emerging markets in a sweet spot, where earnings are powered both by the AI-capex winners and by a broader set of companies across sectors where the investment case isn’t necessarily linked to AI. These include companies in the materials and industrials sectors, as well as financials, with an emphasis on quality banks. Of course, EMs are highly volatile and carry increased risk. This means discernment and active selection may matter more.

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