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Q3 2026

Equity Market Outlook

Can global stocks continue to look past geopolitical uncertainty and bouts of AI anxiety to power on in Q3? Strong earnings augur well, even as volatility remains in play. Our alpha-seeking investors look ahead with perspective on diversification in a concentrated market, underappreciated opportunities and the compelling prospects in parts of Asia.
Read the full equity market outlook Read the full equity market outlook

At a glance

1

Where’s the alpha?

Finding alpha today requires digging deeper into the dominant AI theme to uncover unexpected interconnections ― and opportunities.
2

Following the cash flows

As capex reduces free cash flow in market hot spots, we identify other areas where the free cash may be flowing.
3

Extending the AI lens

AI proliferation requires vast amounts of power ― creating vast opportunity in energy and infrastructure stocks.
4

AI in Asia

Emerging markets have shown a performance edge year-to-date, fueled by Asia’s contribution to the global AI buildout.

Taking stock

Equities displayed resilience in the first half of the year, intermittently fazed but ultimately pushing past geopolitical uncertainty and periodic questions around the pace and trajectory of AI-related investment.

 

It’s not unreasonable to approach the second half of 2026 with healthy doses of optimism and vigilance.

 

We remain constructive on the long-term AI opportunity and continue to identify potential beneficiaries across what we see as a multi-year investment cycle. At the same time, we recognize the importance of diversification. We see value in broadening our focus to other areas of the global markets and discuss the possibilities in our Q3 Equity Market Outlook. 

We continue to see scope for ample opportunity ― in both the AI theme and in areas well beyond it across global equity markets.

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.

Energy, infrastructure and extending the AI investing lens

One of the biggest constraints on AI development is energy and the infrastructure needed to deliver it, creating compelling opportunity in the companies that are best placed to both produce this power and get it to where it’s needed.

 

Our active investors believe large parts of the listed infrastructure universe could benefit from the AI-driven surge in electricity demand. As utilities spend on new sources of power to meet rising demand, this leads to larger long-term revenues (at prices set by national regulators) and potential for accelerating earnings growth. At the same time, utilities retain their defensive characteristics, meaning they may provide a measure of resilience in periods of market uncertainty.

How AI is powering equities in Asia

Asia may be an underappreciated AI beneficiary as it is home to several large companies that are feeding into the AI supply chain. A portion of AI investment from the big U.S. tech companies is flowing to the large Asian makers of the semiconductors needed for AI expansion.

 

Beyond chips, some of the world’s leading memory providers reside in Asia, as do several companies that are key to the expansion of global power infrastructure. Shortages of both memory and power have led to strong earnings growth for companies that operate in these areas. Cooling is another critical input for energy-intensive data centers, and greater chip power means an increasing shift from air to liquid cooling. This need is also being filled in Asia, where leading-edge companies are adopting next-gen cooling systems that enable greater computing power in the same space.

Key client questions this quarter

  • Company earnings have been strong, with consensus analyst estimates suggesting an outlook for continued strength globally. This helped stocks to push past geopolitical uncertainty and intermittent anxiety around AI in the first half of 2026. As Q3 begins, our active equity investors are both optimistic and vigilant. They are monitoring shifts in AI momentum in seeking new and underappreciated expressions of the AI theme while also looking for ways to diversify equity portfolios within and outside of this market-shaping mega force.

  • Our investors begin the second half of 2026 with a constructive outlook for equities. Earnings trends have been 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 may create opportunities. 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.

  • Our active equity investors believe it’s possible to capture some of the AI upside with potentially less of the volatility that comes with high valuations and market concentration in the prevailing leaders. One way is to increase exposure to the infrastructure and power investment that is needed to facilitate the AI boom and the broader shift toward electrification that AI has accelerated. Energy and the infrastructure needed to deliver it are among the biggest constraints on AI development. For this reason, they see compelling opportunity in the companies that are best placed to both produce this power and get it to where it’s needed.

  • Our investors identify parts of Asia as attractive for their contribution to the AI buildout. Much of the enormous AI investment from the big U.S. tech companies is flowing to the large Asian makers of the semiconductors essential for AI expansion, as well as the supply chains that have developed around these giants. They also highlight constraints in the memory and power needed for AI proliferation, citing Asia as home to some top memory providers as well as companies that are key to the expansion of global power infrastructure.

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
Helen Jewell

Helen Jewell

International CIO of BlackRock Fundamental Equities
Egon Vavrek

Egon Vavrek

Head of EM and Asia Core, 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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BlackRock's Target Allocation model portfolios seek to deliver competitive performance through active model management and risk mitigation. These models aim to provide a simpler way to build diversified portfolios and develop scalable investment strategies for your clients.
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