Tall building against blue sky
Q2 2026

Equity Market Outlook

Equity markets have seen reversals and rotations to start the year. Despite strong earnings globally, concerns over AI disruption and geopolitical events are powerful forces. Our alpha-seeking equity investors assess the backdrop and offer their views on AI expansion, U.S. market broadening and top destinations for value in their Q2 market outlook.
Read the full equity market outlook Read the full equity market outlook

At a glance

1

Investing in AI

The market is no longer treating the AI theme uniformly. We believe gaining an edge today requires anticipating change.
2

U.S. market broadening

As the U.S. market expansion starts to take shape, we see opportunity for stock selection in the next leg of potential leaders.
3

Finding global value

After a strong 2025, few equity indexes are priced at a discount. But we see pockets of value for those looking beyond U.S. borders.
4

Japan equity optimism

February elections installed a pro-growth government in Japan, adding a new layer of support for Japanese equities.

Taking stock

If 2025 was a year of mega caps and momentum, 2026 begins with refrains of reversal, rotation and recalibration.

The AI mega force is unmatched in its might, in our view, igniting large and lasting shifts in the long-term profitability outlook across economies. However, AI is also showing signs of recalibration as the opportunity set broadens beyond the prevailing leaders.

This expansion ultimately means investors have greater choice for sourcing growth. Importantly, we see that choice extending well beyond AI and the U.S., as pockets of opportunity present themselves around the globe.

Carrie King

Carrie King

Global CIO, BlackRock Fundamental Equities
Raffaele Savi

Raffaele Savi

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

It’s a decidedly complex but exciting market ― and one we believe is deserving of dynamic, active management in equities.

Investing in a fast-changing AI landscape

The market has moved away from treating the AI theme as uniformly positive for technology economics. Investors today are digging deeper and filtering companies through more demanding questions. This reassessment has contributed to greater dispersion within technology and beyond, marking a shift from recent years when broad exposure to powerful secular themes such as AI was often sufficient for optimizing growth.

Jeff Shen, Co-Head and Co-CIO of Systematic Active Equities, and Philip Hodges, Lead of Dynamic Factor Rotation Strategies and Co-Lead of Systematic Macro, believe today’s environment calls for greater selectivity and adaptability, as multiple crosscurrents intersect to reshape the opportunity set.

The makings of a broader U.S. stock market

Calls for market broadening are not new. But they may have been early as the mega-cap market leaders in the S&P 500 continued to drive returns for longer than many expected.

While this cohort continues to lead earnings growth, it is not leading market returns this year. Fundamental Equities Global CIO Carrie King says markets are anticipatory, and some of the recent rotation in returns may reflect investor expectations of broadening fundamental strength. She expects market broadening to come not in large swaths but in a growing number of interesting pockets, making the coming months and years a particularly exciting time for active stock selection.

A global tour of stock market value

After a year of impressive gains for global equities, “bargains” can be hard to find. Helen Jewell, BlackRock Fundamental Equities’ International CIO, sees some surprise pockets of value for those willing to hunt the globe.

Her global tour of stock market value takes her to defense stocks and banks in Europe; to interesting corners of the UK, including banks and small caps; and to Latin America in emerging markets. She believes an active approach is required to achieve more balanced portfolios with the wherewithal to weather the types of geopolitical gyrations already seen at the start of 2026.

An election boost for Japan equities

Japanese equities outperformed global markets over the past five years ― a trend that was accelerated after the recent election. Can the positivity continue? It can, according to Helen Jewell and Rie Shigekawa, a member of the Japan Large Cap Equities team within BlackRock Fundamental Equities.

Japan already had tailwinds in supportive monetary policy and concerted efforts around corporate transformation. They believe these, along with a pro-investment government, can underpin continued earnings growth in Japan. The opportunity, they say, lies in individual stock selection that scans across sectors and sizes to reveal companies that may be well-poised to benefit from the transformations taking place.

Key questions this quarter

  • The year started with AI-related volatility and rotations, with the prevailing market leaders taking a pause. We believe this reflects a recalibration in market focus rather than a weakening in underlying company fundamentals. That said, earnings are broadening beyond a highly concentrated group of mega-cap technology names tied to AI. This expansion gives investors greater choice for sourcing growth.

  • Market concentration, specifically in the S&P 500 Index of U.S. stocks, remains high. However, we see signs of broadening beyond the prevailing leaders. The “magnificent 7” stocks and the technology sector continue to lead earnings growth. Yet market returns this year are rewarding sectors and stocks beyond this cohort as these former leaders lag behind. We believe some of this rotation in returns may reflect investor expectations for expanding fundamental strength across the market, setting up an exciting backdrop for stock selection.

  • After a strong 2025, few markets are priced at a “discount.” However, we do see pockets of value around the world, particularly for those willing to look internationally. Areas of interest include defense stocks in Europe. Geopolitical tensions keep defense in focus and we still see value here, even as the European defense sector posted strong 12-month gains. Europe and UK banks also present compelling value. In the emerging world, we see opportunity in Latin America, particularly Brazil. Stocks appear undervalued and Brazil’s economy is showing signs of improvement.

  • Japan remains among our favored equity markets globally. The February election installed a pro-growth, pro-investment government that we believe adds further support to equities. Other tailwinds include supportive monetary policy and concerted efforts around corporate transformation. Japanese companies have made meaningful progress to improve return on equity and balance sheet quality. We believe political support and corporate transformation can underpin continued earnings growth in Japan.

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