2025 Investment Outlook | BlackRock Investment Institute

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2025 GLOBAL INVESTMENT OUTLOOK

Dec. 4, 2024 | We are not in a typical business cycle. Mega forces like AI are transforming economies, breaking historical trends. We stay risk-on as we look for transformation beneficiaries – and go further overweight U.S. stocks as the AI theme broadens out. We have more conviction inflation and interest rates will stay above pre-pandemic levels.

Read our 2025 outlook (PDF) Read our 2025 outlook (PDF)

Investment themes

01

Financing the future

Mega forces including AI are transforming economies. We see capital markets – especially private markets – playing a vital role in building this transformation.
02

Rethinking investing

This transformation raises questions about how to build portfolios for an ever-changing outlook. We think investors should focus on themes and put more weight on tactical views.
03

Staying pro-risk

We remain pro-risk and further upgrade U.S. stocks thanks to U.S. corporate strength. But we stay nimble. Key signposts for changing our views include any surge in long-term bond yields or an escalation in trade protectionism.

Read details of our 2025 outlook:

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Transformation underway

Historical trends are being permanently broken in real time as mega forces, like the rise of artificial intelligence (AI), transform economies. The ongoing outsized response of long-term assets to short-term news shows how unusual this environment is. We stay risk-on as we look for transformation beneficiaries – and go further overweight U.S. stocks as the AI theme broadens out. We have more conviction inflation and interest rates will stay above pre-pandemic levels.

2024 has reinforced our view that we are not in a business cycle: AI has been a major market driver, inflation fell without a growth slowdown and typical recession signals failed. Volatility surged and narratives flipflopped as markets viewed developments through a business cycle lens.

As we head into 2025, some countries have new leaders with a mandate for political and economic change. That could see policymakers pursuing measures that add to volatility rather than stability. Financial markets may work to rein in any policy extremes, such as with fiscal policy. Yet we think there will be fewer checks when stocks are running up, creating the potential for risk appetite to turn frothy.

Learning about the trend

For decades, economies followed stable, long-term trends. Investors could focus almost entirely on navigating any temporary deviations around those trends. Growth would eventually converge back toward its trend. That has been a foundational tenet of portfolio construction.

We think the environment is very different now. Economies are undergoing transformations that could keep shifting the long-term trend, making a wide range of very different outcomes possible. See the chart. What’s driving economic growth may look very different.

An ever-changing trend

Hypothetical evolution of U.S. GDP

For illustrative purposes only. Source: BlackRock Investment Institute, December 2024. Note: The charts show an illustration of how economic output could evolve – the chart on the left and top right assumes there is one single central trend for growth and the chart on the bottom right assumes that there is not one single central trend for growth, but many different trends possible.

Checks and (im)balances

2024 was a major election year and a punishing one for incumbent governments. Voters expressed frustration, most notably about the higher cost of living after the pandemic, but also issues like immigration. Several countries have now seen either a change in government or the erosion of ruling party support. The desire for political and economic change could remain driving forces in 2025.

In the U.S., Republican control of both Congress and the presidency means President-elect Donald Trump could implement much of his agenda. If implemented extensively, some of his policies could reinforce geopolitical fragmentation and add to inflation. See the chart. Less government emphasis on macro stabilizing policies – like fiscal frameworks and inflation targets – would put greater onus on financial markets to enforce discipline.

Broadening protectionism

Trade restrictions, 2014-2023

Source: BlackRock Investment Institute, IMF, with data from globaltradealert.org, December 2024. Note: The chart shows the number of unilateral non-liberalizing trade interventions (as classified by globaltradealert.org) taken by countries around the world.

What 2024 says about 2025

Markets have been more sensitive to data surprises than in the past, with even long-term assets having outsized reactions. See the chart. That reinforces volatility. Yet 2024 underscored why trying to overlay a typical business cycle on incoming U.S. data can be misleading when structural forces are at play. Inflation eased, but growth remained strong, driven by structural forces like the post-pandemic normalization of the labor and goods markets and a rise in immigration.

Looking ahead to 2025, we see persistent inflation pressures fueled by rising geopolitical fragmentation, plus big spending on the AI buildout and the low-carbon transition. Slowing immigration may exacerbate the challenges of an aging workforce, keeping wage growth elevated. The Federal Reserve is unlikely to pursue aggressive rate cuts, with rates unlikely to fall much below 4%. Given persistent budget deficits, sticky inflation, and heightened volatility, we expect long-term Treasury yields to climb as investors demand higher compensation for risk.

Sensitive to surprises

Sensitivity of U.S. 10-year yield to economic surprises, 2003-2024

Past performance is no guarantee of future results. Source: BlackRock Investment Institute, with data from LSEG Datastream, December 2024. Notes: The line shows how sensitive the U.S. 10-year Treasury yield is to economic surprises, using regression analysis to estimate the relationship between U.S. 10-year Treasury yields and the Citi Economics Surprise Index over a rolling six-month window. This is only an estimate of the relationship between the 10-year Treasury yield and economic surprises.

View the outlook in charts (PDF) View the outlook in charts (PDF)

Financing the future

The nature of investing is changing significantly, in our view. We think investors can find opportunities by tapping into the waves of transformation we see ahead in the real economy, with AI and the low-carbon transition requiring investment potentially on par with the Industrial Revolution. That’s why our first theme is financing the future. We see capital markets playing a vital role as these mega forces drive a broad infrastructure buildout.

On the rise

Private market assets under management, 2015-2029

Forward looking estimates may not come to pass. Source: BlackRock Investment Institute, Preqin, December 2024. Notes: The chart shows the total assets under management in private market funds with forecasts from 2024 onwards in Preqin’s “Future of Alternatives 2029” report.

Rethinking investing

We think investors should focus more on themes and less on broad asset classes as mega forces reshape whole economies. In other words, the unit of analysis for thinking about returns is changing – and that calls for rethinking investing, our second theme. One key conclusion: with no stable long-term trend and an ever-evolving outlook, investors may want to reconsider what a neutral benchmark is and put greater emphasis on tactical views since investors cannot rely on eventual convergence back to historical trends. Being more dynamic with portfolios and getting granular with views are both essential, in our view.

Ever-bigger share

“Magnificent 7” market cap as a share of the S&P 500, 1995-2024

Past performance is not a reliable indicator of future results. It is not possible to invest in an index. Indexes are unmanaged and performance does not account for fees. Source: BlackRock Investment Institute, with data from LSEG Datastream, December 2024. Notes: The chart shows the combined market capitalization (cap) of the ‘magnificent 7’ stocks (Amazon, Apple, Google, Meta, Microsoft, Nvidia and Tesla) as a share of the S&P 500’s total market cap. The chart sums up the market cap of each stock as they went public, capturing Amazon from 1997 onwards, Nvidia from 1999, Google from 2004, Tesla from 2010 and Meta from 2012.

Staying pro-risk

We are staying pro-risk, our third theme. We see the U.S. still standing out versus other developed markets thanks to stronger growth and its ability to better capitalize on mega forces. We up our overweight to U.S. equities and see the AI theme broadening out. We don’t think pricey U.S. equity valuations alone will trigger a near-term reassessment. But we are ready to adjust if markets become overexuberant. We are underweight long-term U.S. Treasuries on both a tactical and strategic horizon – and we see risks to our upbeat view from any spike in long-term bond yields. We see private markets as an important way to allocate to mega forces and have turned more positive on infrastructure equity on a strategic horizon.

Hardening divergence

U.S. equity performance vs. the rest of the world, 2010-2024

Past performance is not a reliable indicator of future results. It is not possible to invest directly in an index. Indexes are unmanaged and performance does not account for fees. Source: BlackRock Investment Institute, with data from LSEG Datastream. The charts show the indexed performance of U.S. equities compared to the rest of the world. Index proxies used: MSCI USA, MSCI ACWI ex. USA.

Evolving our scenarios

We worked with portfolio managers across BlackRock to evolve our scenarios for 2025 given what we have learned. The new scenarios are U.S. corporate strength and easing supply constraints. See our scenario map below. This recognizes that U.S. corporate strength goes beyond the AI theme.

We think that U.S. corporate strength is the most likely scenario to play out over the next six-to-12 months as earnings growth broadens, even if the economy slows slightly. This highlights the resilience of corporate earnings even if interest rates stay higher.

Staying dynamic

Our scenarios framework helps ground our views on a tactical horizon. We have done so in 2024 as our concentrated AI scenario evolved to our U.S. corporate strength scenario. Yet we could change our stance quickly if a different scenario were to look more likely.

Big calls

Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, April 2025

	Reasons
Tactical
U.S. equities	Policy uncertainty may weigh on growth and stocks in the near term. Yet we think U.S. equities can regain their global leadership. We think the underlying economy and corporate earnings are still solid and supported by mega forces such as AI.
Japanese equities	We are overweight. Ongoing shareholder-friendly corporate reforms remain a positive. We prefer unhedged exposures given the yen’s potential strength during bouts of market stress.
Selective in fixed income	Persistent deficits and sticky inflation in the U.S. make us underweight long-term U.S. Treasuries. We also prefer European credit – both investment grade and high yield – over the U.S. on more attractive spreads.
Strategic
Infrastructure equity and private credit	We see opportunities in infrastructure equity due to attractive relative valuations and mega forces. We think private credit will earn lending share as banks retreat – and at attractive returns.
Fixed income granularity	We prefer DM government bonds over investment grade credit given tight spreads. Within DM government bonds, we favor short- and medium-term maturities in the U.S., and UK gilts across maturities.
Equity granularity	We favor emerging over developed markets yet get selective in both. EMs at the cross current of mega forces – like India and Saudi Arabia – offer opportunities. In DM, we like Japan as the return of inflation and corporate reforms brighten the outlook.

Note: Views are from a U.S. dollar perspective, April 2025. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any particular funds, strategy or security.

Tactical granular views

Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, April 2025

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.

Search views

Asset		Tactical view	Commentary
Equities
United States			We are overweight. Policy uncertainty may weigh on growth and stocks in the near term. Yet we think the underlying economy and corporate earnings are still solid and supported by mega forces such as AI.
Europe			We are neutral, preferring the U.S. and Japan. We see room for more European Central Bank rate cuts, supporting an earnings recovery. Rising defense spending, as well as potential fiscal loosening and de-escalation in the Ukraine war are other positives.
U.K.			We are neutral. Political stability could improve investor sentiment. Yet an increase in the corporate tax burden could hurt profit margins near term.
Japan			We are overweight given the return of inflation and shareholder-friendly corporate reforms. We prefer unhedged exposure as the yen has tended to strengthen during bouts of market stress.
Emerging markets			We are neutral. U.S. tariffs and trade tensions are likely to drag on growth in China and emerging markets more broadly, even with potential policy support.
China			We are neutral. The uncertainty of trade barriers makes us more cautious, with potential policy stimulus only partly offsetting the drag. We still see structural challenges to China’s growth.
Fixed income
Short U.S. Treasuries			We are overweight. We view short-term Treasuries as akin to cash in our tactical views – but we would still lean against the market pricing of multiple Fed rate cuts this year.
Long U.S. Treasuries			We are underweight. Persistent budget deficits and geopolitical fragmentation could drive term premium up over the near term. We prefer intermediate maturities less vulnerable to investors demanding more term premium.
Global inflation-linked bonds			We are neutral. We see higher medium-term inflation, but cooling inflation and growth may matter more near term.
Euro area government bonds			We are underweight. We see room for yields to climb more as Europe moves to ramp up defense and infrastructure spending. The European Central Bank is also nearing the end of rate cuts.
UK Gilts			We are neutral. Gilt yields are off their highs, but the risk of higher U.S. yields having a knock-on impact and reducing the UK’s fiscal space has risen. We are monitoring the UK fiscal situation.
Japan government bonds			We are underweight. Yields have surged, yet stock returns still look more attractive to us.
China government bonds			We are neutral. Bonds are supported by looser policy. Yet we find yields more attractive in short-term DM paper.
U.S. agency MBS			We are neutral. We see agency MBS as a high-quality exposure in a diversified bond allocation and prefer it to IG.
Short-term IG credit			We are overweight. Short-term bonds better compensate for interest rate risk.
Long-term IG credit			We are underweight. Spreads are tight, so we prefer taking risk in equities from a whole portfolio perspective. We prefer Europe over the U.S.
Global high yield			We are neutral. Spreads are tight, but the total income makes it more attractive than IG. We prefer Europe.
Asia credit			We are neutral. We don’t find valuations compelling enough to turn more positive.
Emerging market - hard currency			We are neutral. The asset class has performed well due to its quality, attractive yields and EM central bank rate cuts. We think those rate cuts may soon be paused.
Emerging market - local currency			We are underweight. We see emerging market currencies as especially sensitive to trade uncertainty and global risk sentiment.

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

Euro-denominated tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, April 2025

Search views

Asset	Tactical view	Commentary
Equities
Europe ex UK		We are neutral, preferring the U.S. and Japan. We see room for more European Central Bank rate cuts, supporting an earnings recovery. Rising defense spending, as well as potential fiscal loosening and de-escalation in the Ukraine war are other positives.
Germany		We are underweight. Valuations and earnings momentum offer modest support compared to peers, especially as ECB rate cuts ease financing conditions. Prolonged uncertainty over the next government, potential tariffs, and fading optimism about China’s stimulus could dampen sentiment.
France		We are underweight. The outcome of France’s parliamentary election and ongoing political uncertainty could weigh on business conditions for French companies. Yet, only a small share of the revenues and operations of major French firms is tied to domestic activity.
Italy		We are underweight. Valuations are supportive relative to peers, but past growth and earnings outperformance largely stemmed from significant fiscal stimulus in 2022-2023, which is unlikely to be sustained in the coming years.
Spain		We are neutral. Valuations and earnings momentum are supportive compared to other euro area stocks. The utilities sector stands to gain from an improving economic backdrop and advancements in AI.
Netherlands		We are underweight. The Dutch stock market’s tilt to technology and semiconductors—key beneficiaries of rising AI demand—is offset by less favorable valuations and a weaker earnings outlook compared to European peers.
Switzerland		We are underweight, consistent with our broader European view. Earnings have improved, but valuations remain elevated compared to other European markets. The index’s defensive tilt may offer less support if global risk appetite stays strong.
UK		We are neutral. Political stability could improve investor sentiment. Yet an increase in the corporate tax burden could hurt profit margins near term.
Fixed income
Euro area government bonds		We are underweight. We see room for yields to climb more as Europe moves to ramp up defense and infrastructure spending. The European Central Bank is also nearing the end of rate cuts.
German bunds		We are neutral. Market pricing aligns with our policy rate expectations, and 10-year yields have eased from their highs, partly due to growth concerns. We are watching the fiscal flexibility debate ahead of upcoming elections.
French OATs		We are neutral. France faces challenges from elevated political uncertainty, persistent budget deficits, and a slower pace of structural reforms. The EU has already warned the country for breaching fiscal rules, and its sovereign credit rating was downgraded earlier this year.
Italian BTPs		We are neutral. The spread over German bunds looks tight given its budget deficits and debt profile, prompting a warning from the EU. Other domestic factors remain supportive, with growth holding up relative to the rest of the euro area and Italian households showing solid demand to hold BTPs at higher yields.
UK gilts		We are neutral. Gilt yields are off their highs, but the risk of higher U.S. yields having a knock-on impact and reducing the UK’s fiscal space has risen. We are monitoring the UK fiscal situation.
Swiss government bonds		We are neutral. The Swiss National Bank has cut policy rates this year as inflationary pressures eased but is unlikely to reduce rates significantly further.
European inflation-linked bonds		We are neutral. We see higher medium-term inflation, but cooling inflation and sluggish growth may matter more near term.
European investment grade credit		We are neutral on European investment grade credit, favoring short- to medium-term paper for quality income. We prefer European investment grade over the US, as spreads are relatively wider.
European high yield		We are overweight. The income potential is attractive, and we prefer European high yield for its more appealing valuations, higher quality, and shorter duration compared to the US. In our view, spreads adequately compensate for the risk of a potential rise in defaults.

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a euro perspective, April 2025. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.