BlackRock: Profit growth exceeds expectations, will the US stock market continue to rise?

According to the Zhitong Finance APP, BlackRock stated in a post that the increased volatility in the US stock market is caused by multiple factors: weakening economic data leading to concerns about a US economic recession, heightened tension before the US election, and investors selling for profits to free up funds for new stock offerings. However, US corporate earnings remain resilient, with all industries exceeding expectations in the second quarter, driving overall profit margins to improve. Data shows that second-quarter earnings of companies in the S&P 500 index as a whole grew by 13%, surpassing the general expectation of 10%.

As shown in the chart below, analysts predict that the US stock market is expected to see broad-based earnings growth in the next 12 months, especially in industries related to artificial intelligence. While technology companies continue to lead in earnings, the gap in earnings growth between other companies and US technology companies is narrowing, indicating a potential expansion in the scope of the US stock market rally. Against the backdrop of ongoing market volatility, BlackRock remains optimistic about high-quality companies that can continue to achieve sustained earnings growth and free cash flow.

BlackRock stated that it is not only focusing on US technology stocks but expanding to a broader range of fields related to artificial intelligence development. In addition, the institution has fine-tuned its views on Japanese stocks but remains overweight. It holds a negative view on short-term US bonds but is optimistic about medium-term US bonds and high-quality credit bonds.

BlackRock continues to see opportunities in the artificial intelligence theme but has made adjustments to its allocation. In the current first stage of artificial intelligence development, investors are questioning the scale of capital expenditure on artificial intelligence by major technology companies and whether the application of artificial intelligence will accelerate. While closely monitoring relevant signals to adjust views in a timely manner, patience is needed as there is still a long way to go in the development of artificial intelligence. However, a shift in market sentiment towards these companies may put pressure on their valuations. Therefore, BlackRock is turning its focus to beneficiaries of the first stage of artificial intelligence development, including energy and utility companies providing key inputs, as well as real estate and resource companies related to artificial intelligence development. Apart from the US, BlackRock has fine-tuned its views on Japanese stocks but remains overweight. Due to the drag on corporate earnings from the appreciation of the yen and some ambiguous policy signals from the Bank of Japan after inflation exceeded expectations, the outlook for Japanese stocks has been lowered, but it is expected that corporate reforms in Japan will continue to enhance shareholder returns.

US corporate earnings growth is no longer limited to early winners in artificial intelligence, indicating that the US economy is more resilient than what the market pricing reflects. As expected by the market, US economic growth is slowing down, but the extreme reactions shown by the market to weakening economic data are somewhat excessive compared to what sentiment data implies. Currently, US economic activity is still in a relatively good state despite the rise in unemployment, which is due to an increase in labor supply from immigration rather than a decrease in demand. From a medium-term perspective, ongoing trends such as declining labor force, massive US fiscal deficits, and geopolitical fragmentation will lead to persistent high inflation Despite the recent decline in US inflation towards the Federal Reserve's target, rising inflation in the medium term will limit the extent of Fed rate cuts. Concerns about economic growth and cooling inflation have pushed the yield on the US 10-year Treasury to its lowest level in 15 months, as investors expect the Fed to cut rates by over 100 basis points this year and by around 240 basis points in the next 12 months. This suggests that the Fed will respond to economic downturns. As a result, policy rates may be lower than BlackRock's expected neutral rate, which is a level of interest rates that neither stimulates nor hinders economic growth. BlackRock holds a negative view on short-term US bonds and is looking for opportunities in other areas of developed markets, such as short-term Eurozone bonds and credit bonds