Earlier this month, US stocks saw their sharpest one-day decline since April after President Donald Trump proposed a 100 per cent tariff on China. However, equities have since rebounded as a tentative agreement has begun to take shape.
Speaking in the firm’s weekly video, BlackRock’s portfolio strategist, Natalie Gill, emphasised the asset manager’s continued risk-on strategy for US earnings, highlighting that “resilience is key”.
“US stocks recovered last week as tough trade talk between the US and China started to look more like each side testing leverage.
“This quick turnaround aligns with an immutable economic law we’ve long tracked: supply chains can’t be rewired overnight,” Gill said.
She explained that what markets have witnessed this month is not unlike when stocks slid after the 2 April tariff announcement. At the time, BlackRock believed this fundamental law about supply chains would prevent tariffs from landing at the proposed maximal stance.
“So, we quickly re-upped risk – a bet that paid off,” she said, adding that the firm believes these dynamics are playing out again on a smaller scale.
Gill indicated that BlackRock will continue monitoring trade negotiations but anticipates that tensions will de-escalate, which could also sustain positive market sentiment as earnings season progresses.
In terms of what is driving broad earnings growth, BlackRock pointed to three significant factors.
First, US economic growth is showing resilience, with an expected gross domestic product growth of 1.5 per cent this year. While below the long-term trend, BlackRock noted that this figure indicates the economy is far from recessionary conditions.
Second, the current rate cut cycle by the Federal Reserve (the Fed) is predicted to see more ahead and put questions about its independence on the backburner for now.
Finally, BlackRock highlighted continued AI-related spending – particularly by the Magnificent Seven mega-cap tech companies. LSEG data shows the expected year-over-year Q3 earnings growth for this group of tech titans is sitting at 14 per cent.
Also this week, Scott Helfstein, Global X’s head investment strategist, similarly expressed optimism regarding the “automation age” of AI and robotics driving the US economy, believing these sectors still have significant growth potential.
Beyond AI and the Magnificent Seven, BlackRock also highlighted an improvement in earnings growth for the rest of the S&P 500 companies, with estimated growth standing at 7.8 per cent – indicating a significantly smaller gap compared to recent quarters.
“The gap between earnings forecasts for those seven stocks and the remaining 493 companies in the S&P 500 is narrowing,” Gill said.
For these reasons, BlackRock noted a relative preference for US equities over Europe’s, where earnings growth still lags.
At the same time, the asset manager emphasised the importance of a granular approach, particularly in monitoring productivity enhancements or revenue generation stemming from mega-cap tech companies’ accelerated AI investments.
Meanwhile, Gill noted that the firm is closely observing how the Trump administration’s developments around bank deregulation – aimed at stimulating non-government lending and private sector expansion – will support financials.
Identified by JP Morgan Asset Management last month as “the next phase of the administration’s economic agenda”, BlackRock said leading banks were already reporting strong earnings and 16 per cent expected earnings growth for the sector.
While the asset manager acknowledged LSEG data showing US regional banks dipped last week on credit issues, it maintained that these appear “limited to two banks”.
Lastly, Gill said BlackRock will continue to track tariff impacts, which US corporates have largely withstood so far.
“But certain sectors will feel the pinch more, particularly smaller companies and producers of often-imported goods,” she said.
