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Investing.com -- BlackRock is maintaining its overweight position on U.S. equities, citing continued momentum in artificial intelligence despite mounting trade tensions and expectations for a supply-driven economic contraction.
“We expect a U.S. contraction this year given supply disruptions from tariffs,” analysts at BlackRock (NYSE:BLK) wrote.
“Yet this is very different from a typical business cycle recession given Covid-like supply constraints.” The firm said the AI “mega force” is keeping it positive on developed market stocks, “especially the U.S., though more volatility is likely ahead.”
The disruption stems from elevated tariffs between the United States and China, particularly after the announcement of sweeping tariffs.
“If current steep tariffs stay in place… we see a supply-driven economic contraction tied to trade-related disruptions like the Covid-19 shock,” BlackRock noted.
While BlackRock expects near-term volatility, it sees the broader economic damage as limited, citing what it calls “hard economic rules” — such as the inability to quickly rewire supply chains — which could encourage more pragmatic policymaking.
“These supply-driven elements could bolster the inflationary pressure from tariffs,” the analysts added, creating a “sharper trade-off” for the Federal Reserve between managing growth and controlling inflation.
Despite macro uncertainty, BlackRock said “the companies at the forefront of the AI mega force have largely kept driving U.S. equity strength,” with many beating first-quarter earnings expectations and ramping up AI investment.
In contrast, they said tariff-exposed sectors such as autos have flagged risks in their guidance.
BlackRock shortened its tactical horizon to three months following the April 2 tariff announcement, but extended it back to six to 12 months after a temporary tariff pause.
Overall, the firm said: “The AI theme keeps us positive on DM stocks, especially the U.S.”
