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Q4 2026

Equity Market Outlook

Equities took a winding path to positive returns through the first three quarters of the year. What may be in store for Q4? Our alpha-seeking investors are risk-on and risk-aware as they explore: AI spending and investment opportunities, strategies to balance income and growth, and areas of the market that may warrant greater investor attention.
Read the full equity market outlook Read the full equity market outlook

AT A GLANCE

1

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.
2

Key Qs for Q4

History bodes well for fourth quarters, but every year is different. Get answers to key questions for Q4 2026.
3

Material matters

Mining companies are critical to the AI buildout. And capital discipline makes many of them attractive dividend payers.
4

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 beyond it.

Finding alpha in fragmented equity markets

As the AI theme grows more nuanced, investors are challenged to look beyond prevailing market and factor trends to anticipate where the next opportunities may emerge beneath them.

This is where insights matter. Our systematic analysis, shows some of the most differentiated insights have come from signals that identify linkages across companies, industries and markets. This has become more relevant as the AI buildout has scaled and leadership has extended beyond first-order beneficiaries. Company outcomes are less about their sector or geography and more about the role they play in the investment cycle. Applied through this lens, we see some of the strongest opportunities emerging in more discrete expressions within the infrastructure, power and industrial layers supporting the AI buildout.

Following the cash flows to unique equity opportunities

Free cash flow (FCF) is an important signal of business strength and, we believe, worth exploring to find equity diversifiers in an AI-driven market. Applying this lens leads us to opportunities in the energy, materials and healthcare sectors. 

 

The current energy cycle could be elongated, in our view, given massive demand for power from the AI data center buildout and a reshaping of the global supply chain amid recent geopolitical events. The story is similar in materials, where a global desire to keep essential resources close to home is setting up a highly competitive landscape for an acutely short supply of natural resources. Meanwhile, the healthcare sector shows historically high FCF margins. Healthcare equipment is a particular area of interest for its compelling valuations and low correlation to 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.

Key client questions this quarter

  • 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.

  • 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.

  • 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).

  • 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.

  • 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.

Authors

Raffaele Savi

Raffaele Savi

Global Head of BlackRock Systematic; Co-CIO and Co-Head of Systematic Active Equities
Jeff Shen

Jeff Shen

Co-Head and Co-CIO of BlackRock Systematic Active Equities
Carrie King

Carrie King

Global CIO of BlackRock Fundamental Equities
Robert Fisher, CFA

Robert Fisher, CFA

Equity Income Lead, BlackRock Systematic Active Equities
Egon Vavrek

Egon Vavrek

Head of EM and Asia Core, BlackRock Fundamental Equities
Evy Hambro

Evy Hambro

Global Head of Thematic and Sector Investing, BlackRock Fundamental Equities

Practitioner’s perspective

How does the opportunity in equities stack up in the eyes of a multi-asset investor?

 

Michael Gates, lead portfolio manager of BlackRock’s Target Allocation Models, continues to see a constructive backdrop for equities, but with a selective and risk-aware approach to positioning. His view:

 

  • Strong earnings momentum, particularly for companies tied to AI, has been a defining market feature. Growth has proved not only durable but increasingly supported by improving profitability across key segments, justifying continued conviction in AI-driven growth themes.
  • And yet, the role of AI in markets is evolving with greater dispersion beneath the surface. This highlights opportunities beyond the most crowded areas of the market.
  • Companies benefiting from AI adoption in real economic terms, whether through margin expansion, revenue gains or differentiated competitive positioning, warrant attention.
  • Beyond AI, themes tied to government and geopolitical priorities, including areas like national security and infrastructure, are also compelling.

 

Final thoughts: In a fast-evolving market, the ability to dynamically adjust exposures and capture opportunities across sectors and regions remains critical. Recent market action also underscores the importance of staying invested. The decline in the S&P 500 following the start of the Iran war was fully recovered within 11 days, reinforcing the importance of maintaining exposure. The potential benefits of diversification and risk management become particularly visible in moments like these.

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