BlackRock Bullish on U.S. Stocks as Trade Uncertainties Decrease

BlackRock, a leading global investment management firm, has expressed a bullish outlook on the U.S. stock market, attributing this optimism to a decrease in global trade uncertainties. The firm asserts that economic principles will prevent tariff rates from returning to the elevated levels seen in April. This assessment is grounded in the understanding that sudden changes in tariff rates can disrupt supply chains and impact the U.S.'s reliance on foreign investment to sustain its debt.

BlackRock's analysis suggests that the 90-day tariff suspension period is a strategic move aimed at mitigating the impact of tariffs on bond yields, which had previously risen due to trade tensions. The firm believes that these economic principles will prevent tariff rates from reverting to their April highs and that trade uncertainties have significantly decreased since then.

In addition to the tariff situation, BlackRock highlights several policy changes that could boost market activity. The U.S. Congress is considering extending and expanding tax cuts from the 2017 Tax Cuts and Jobs Act, which could bolster investor confidence. Furthermore, the G7 agreement to exempt U.S. multinational corporations from certain taxes, in exchange for the repeal of Section 899, which allowed for the taxation of foreign investors' assets in the U.S., is seen as a positive development.

On the regulatory front, the Federal Reserve has proposed changes to the Supplementary Leverage Ratio (SLR) requirements for banks. This move aims to free up bank capital, enabling them to hold more government bonds and offset the reduced demand from foreign investors. While the impact on bank lending may not be as significant as in the past due to the rise of private credit, it is expected to provide financing support to the real economy.

BlackRock also notes regulatory changes that could benefit AI and the financial system. The U.S. government is preparing to release an action plan to enhance its competitiveness in the global AI race. State-level regulatory relaxations, such as a new law in West Virginia allowing data centers to bypass zoning regulations and use their own power sources, could further stimulate economic growth and create investment opportunities, particularly in the private market. Additionally, the proposed "Genius Act" aims to provide a clear regulatory framework for stablecoins, which could drive the adoption of digital currencies and shape the future of the financial system.

These policy shifts are expected to invigorate market activity, supporting BlackRock's overweight position on U.S. equities. The firm prefers credit bonds over government bonds and short- to medium-term government bonds over long-term ones. While short-term market dynamics and changing expectations for interest rate cuts could temporarily lower long-term bond yields, sustained inflation is likely to limit the Federal Reserve's ability to cut rates significantly. High deficits will also require investors to demand higher compensation for holding long-term government bonds, known as the term premium.