Q4 2025
Equity Market Outlook
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.
Tony DeSpirito
Global CIO, BlackRock Fundamental Equities
Raffaele Savi
Co-CIO and Co-Head of BlackRock Systematic Equities
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.
Key questions this quarter
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We have an outlook for continued strength in the momentum factor, thanks to an inherent adaptability that allows it to evolve to capture prevailing performance trends. Two years ago, momentum was heavily concentrated in AI enablers. It then diversified into financials as falling front-end rates and a steeper yield curve improved prospects for banks and lenders. Today, momentum has expanded to capture a broader phase of the AI trade, including adopters across industries.
These kinds of shifts reinforce that markets today are anything but static. Leadership is constantly rotating beneath the surface, requiring a dynamic approach to portfolio management.
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Not entirely, but in spots. We see some signs of speculative behavior today. Our review of factor returns year-to-date finds that unprofitable companies have outperformed the broader market while low-volatility and dividend-paying baskets have lagged. We’ve also seen a pick-up in “meme stock” investing among retail investors guided by social media trends.
But this environment can set up a favorable backdrop for stock selection in that it creates mispricings, which can be an active investor’s best friend. We believe today 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 irrational exuberance. Three areas we find particularly ripe for stock picking: technology, healthcare and financials.
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Much of the market narrative in 2025 has been focused on the U.S., especially the tech sector ― and for good reason. The primary focus has been on AI beneficiaries as large U.S. tech companies announced intentions to spend nearly half a trillion dollars on AI capex this year. Yet this spending has implications for equity investors well beyond the tech sector, and beyond the U.S.
Equity market performance year-to-date reveals two surprising winners of 2025, both with links to the vast AI spending. The first is clean energy, which will play a part in powering AI data centers. The second is Spain, which is setting up to be a European data-center hub. We see more upside in both of these areas and opportunity for skilled stock pickers to source potential winners.
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Absolutely. As mega forces reshape economies and financial markets, we see the Asia-Pacific region contributing to this history-making transformation, reaping benefits from it, and offering tangible opportunities for local and global equity investors. Three areas of interest are:
1. AI and robotics, where Asia has global leaders in components (Taiwan), dRAM (Korea), internet applications and robotics (Mainland China), and leading-edge technologies to address demographic challenges (Japan). 2. Metals and mining, which is experiencing a resurgence on the transition to green energy and need for materials, such as copper, to support it. Select countries in Asia are well positioned with cost-effective supply chains. 3. Advanced manufacturing, where Asia has key roles to play in the buildout of data centers and transportation systems, to name just two.
