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Q1 2026

Equity Market Outlook

What’s in store for stocks in 2026 after three fruitful years? More opportunity ripe for the picking, according to our alpha-seeking equity investors. Their Q1 outlook offers perspective on the massive AI spending, explores unexpected ways to play the theme, and uncovers opportunities beyond the AI juggernaut in Europe, Japan and emerging markets.
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At a glance

1

The great AI spending debate

Will big AI spending achieve ample return on investment? We implore patience and see AI paying for itself across time.
2

When AI laggards play catch-up

AI remains a defining force in equity markets, but its influence is taking shape in new and sometimes unexpected ways.
3

The big stories beyond AI

AI-powered U.S. stocks were top headline gatherers in 2025 but not top performers on the global stage. International equities may present hidden opportunity.
4

International equities

We believe Europe, Japan and emerging markets show promising prospects in 2026 ― and aren’t reliant on AI momentum for stock market success.

Taking stock

Artificial intelligence (AI) was once again the story of the year in 2025. AI-leveraged stocks remained the primary driver of earnings in the U.S. while many international markets quietly notched more impressive returns.

 

We are AI believers. While the typical ebbs and flows of an innovation cycle undoubtedly bring bouts of volatility and investor consternation along the way, we see the long road as positive, with AI enabling new business models and unlocking meaningful gains in efficiency, productivity and process optimization across sectors.

 

We also see ample opportunity beyond the AI juggernaut in sometimes unexpected places. All told, it remains an extraordinary time to be an alpha seeker.

Carrie King

Carrie King

Global CIO, BlackRock Fundamental Equities
Raffaele Savi

Raffaele Savi

Co-CIO and Co-Head of BlackRock Systematic Equities

We enter the new year constructive on global equities and confident in the potential for active and dynamic investing to deliver superior returns as the three-year AI driver potentially shifts gears.

Our take on the great AI spending debate

Is massive investment in the AI buildout money well spent? Despite some Q4 AI trepidation, Fundamental Equities Global CIO Carrie King believes the market will ultimately accept and underwrite the capex and sees early signs ― from both management surveys and company commentary ― that the technology is starting to reveal its worth.

 

Given what is likely to be a transformative and lengthy investment cycle, she says pullbacks can be opportunities to assess the landscape for attractive entry points and advocates for an active approach that can adapt and pivot to seize upon the opportunities as the technology and the uses of it grow and evolve.

When AI laggards play catch-up

Mega-cap technology companies propelled the market’s AI-related gains. But beneath that concentrated leadership the AI transformation is creating dispersion across a broader universe of companies tied to the theme, according to Jeff Shen, Co-Head and Co-CIO of Systematic Active Equities, and Linus Franngard, Senior Researcher, Thematic Investing, Systematic Active Equities.

 

They look at the potential portfolio implications of being underweight stocks deemed AI laggards that ultimately play catch-up. The key takeaway: AI’s influence is taking shape in new and sometimes unexpected ways. Thematic investing requires not simply gaining exposure to a theme but understanding and adjusting to the nuances within it.

Big stories beyond AI

Much of the market narrative in 2025 focused on the AI race and the large U.S. companies that have benefited from the AI boom.

 

Yet the U.S. stock market was not the standout performer of the year. Helen Jewell, BlackRock Fundamental Equities’ International CIO, reveals that the U.S. placed #20 on the ranking of 2025 country returns. She sees many reasons why select international equities could thrive again in 2026. Chief among them: improving earnings expectations outside the U.S. The additional benefit of international exposure is diversification away from the concentrated AI trade.

International equities

Where are those investment opportunities outside U.S. borders? Helen Jewell cites exciting prospects in Europe, Japan and emerging markets (EMs).

 

She sees Europe’s 2025 winners (banks, defense and industrials) being joined by a broader set of sectors in 2026 as Europe’s economy shows green shoots of activity. Meanwhile, Japan boasts a reinvigorated investment backdrop, spurred by inflation and a renewed focus on corporate profitability. In EM, many of the drivers of 2025’s robust equity performance remain in place. Interest rate cuts have reduced borrowing costs and spurred economies, and a potentially weaker U.S. dollar reduces financial stress for EM borrowers, attracts foreign investment and supports the prices of commodities produced in many EM countries.

Key questions this quarter

  • AI is an innovation with transformative potential unlike any before and we do expect the market will ultimately accept and underwrite the capex. Examples over the past 10-20 years suggest companies that have spent large sums on custom acquisitions or capex in advance of expected returns have generally done well.

    But the rubber really meets the road when users of the technology begin to reveal its worth, and we’re starting to see some green shoots in this regard. Ultimately, the full benefits of AI capex spending may not be realized in the immediate term, but that does not alter the ample investment potential available right now in what we see as an exciting and extended investment cycle.

  • Mega-cap technology companies remained a driver of the market’s AI-related gains in 2025. Yet beneath that concentrated leadership, we see the AI transformation unfolding in ways that are creating dispersion across a broader universe of companies tied to the theme.

    One example is the expansion of deal activity that has created new linkages across the AI value chain through partnerships, supply agreements and shared capacity. In 2025, these developments fueled periods of sharp gains in companies previously considered laggards in the AI race, rendering the ecosystem increasingly circular and interconnected. This underscores that thematic investing is not just about gaining exposure to themes themselves, but about the skill required to navigate them as they evolve.

  • 2025 headlines emphasized the AI race and the large U.S. companies benefitting from the AI boom. Yet the U.S. stock market was not the standout performer of the year. Our analysis finds the top-returning country as of late November was South Korea, followed by Spain, while the U.S. was in 20th place. International outperformance was an underappreciated story of 2025, and we believe international equities could thrive again in 2026. Areas that we believe could have promising prospects include Europe, Japan and emerging markets.

  • EM equities had a strong 2025, with the MSCI EM Index up more than 30% as of late November, according to data from Bloomberg. Many of the drivers of this performance are likely to remain in place, in our view. A big year of interest rate cuts in 2025 reduced borrowing costs and stimulated economies. And with more cuts expected from the U.S. Federal Reserve over the next 12 months, the relatively higher rates in EM appeal to international lenders. In addition, a potentially weaker dollar reduces financial stress for EM borrowers, attracts foreign investment and supports the prices of commodities produced in many EM countries. Of course, EM investing entails heightened risks. We believe an active, risk-managed approach can be beneficial in this space.

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