Carolyn Barnette
As we approach the end of the year, it’s a great moment to reflect on the past 11 months — and to look ahead to what’s coming.
For this special edition of the Advisor Outlook, Faye and I will walk through the key takeaways from 2025 and where BlackRock investors are finding the most opportunity moving forward.
Let’s start with a quick look at the scoreboard:
• The big AI names may have dominated headlines, but international equities were the quiet winners, taking first place in the race for returns.
• We saw something similar in bonds: U.S. IG and HY bonds both performed well, but international bonds did even better
• And the real standout this year might have been gold, up about 60% through the end of November, supported by a weaker dollar and investor concerns about inflation and macro uncertainty.
Faye Witherall
An important driver of this year’s double-digit returns was macro strength. Growth surprised to the upside in 2025, and the Atlanta Fed’s GDPNow is projecting 3.9% growth for Q3 — that’s nearly double the long-run average.
And on the other side of the Fed’s dual mandate, the labor market has softened slightly. The unemployment rate has risen to 4.4%, its highest level since October 2021. And that cooling has led markets to price in additional Fed rate cuts — one more in December and a more dovish policy path into 2026.
Now shifting to markets — there has been significant attention this year on valuations and market concentration. But when we break down year-to-date returns, tech has actually become cheaper, with the sector’s performance this year driven entirely by earnings growth.
And while we maintain conviction in tech and in growth more broadly, we’re also encouraged by the earnings broadening we’ve begun to see. In Q3, AI-related companies continued to lead the index, but the “other 493” names they delivered 11% EPS growth — the first time that group has reached double-digit growth since 2022.
Carolyn Barnette
Speaking of broadening… international equities are on track to beat U.S. equities by the widest margin since 2006. That’s partially due to the weakening dollar and partly due to enthusiasm for areas like European defense companies, international banks, and emerging market AI leaders.
Now, Europe’s more limited AI exposure could cause it to lag both the U.S. and emerging markets next year… but it could make it a valuable diversifier. We see even more opportunity in emerging markets. And while EM returns – like those in the U.S. – are being driven in large part by AI-related names, the correlation between the U.S. and emerging market equities is still just 0.62, meaning that it’s still offering meaningful diversification benefits.
Faye Witherall
Speaking of diversification, let’s talk bonds. They’ve re-emerged as a source of ballast. So far this year, on average, when the S&P 500 has had a down week this year, bonds have delivered positive returns — that’s a reversal from last year, when both sold off together.
Year-to-date, the correlation between the S&P 500 and Bloomberg Aggregate Bond Index has been -0.20, even as the Agg has delivered +7.5% returns. So investors are getting better performance and diversification from bonds this year .
And as cash rates continue to fall further, we see opportunity in both core bonds and flexible bonds – funded by cash allocations.
Carolyn Barnette
Looking ahead, we remain optimistic. Across many of our asset allocation teams, we continue to see a preference for stocks over bonds, and bonds over cash. We’re maintaining conviction in AI-related stocks, and see additional upside in emerging markets.
We’re also finding better income opportunities outside of cash, and see value in balancing core and flexible bond strategies.
And finally, we see an opportunity to drive better portfolio outcomes by complementing traditional assets with alternatives and options-based strategies. These could provide better upside/downside trade-offs and also potentially drive higher income.
Check out the full Advisor Outlook for more of our best thinking, and I encourage you to reach out to your local market team or call 877-ASK-1BLK to dive more deeply into our outlook for 2026.
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