In ‘Risk-On’ Markets, BlackRock Favors US Stocks Over Europe

FreddieBusiness2025-07-043170

(Bloomberg) — Don’t write off the notion of “America Exceptionalism” just yet, as the US stock market is the best place to be with equities roaring higher, according to the BlackRock Investment Institute.

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US stocks’ underperformance this year relative to their European peers is unlikely to last because American companies will deliver stronger earnings thanks to the adoption of and investment in artificial intelligence, Wei Li, global chief investment strategist at the unit of the world’s biggest asset manager, said Wednesday at a briefing.

“The big picture is that we’re still risk-on, even though there is still a huge amount of uncertainty,” Li said at the briefing on the firm’s investment outlook for the second half of 2025.

BlackRock’s view stands in contrast with some investors who have called for diversifying away from the US after President Donald Trump’s trade and fiscal policies roiled financial markets earlier this year, shaking confidence in the world’s largest economy.

The S&P 500 Index has returned more than 5% this year, trailing the almost 7% gain in the Stoxx Europe 600 Index, which has benefited from expectations for more fiscal stimulus in the region. In dollar terms, the European gauge has returned about 22% this year.

It’s a reversal of the market dynamic of the past few years, when the US benchmark trounced its developed-market peers, in large part due to the soaring shares of American technology behemoths.

BlackRock expects US corporate earnings to grow 6% in the second quarter from a year earlier, compared with about 2% in Europe. In the first quarter, US firms delivered a growth rate of 14%, handily beating the 2% pace in Europe, according to the team. The next US earnings cycle is about to ramp up this month.

“The underlying strength, dynamism, and the innovative potential of the US corporate sector of the US equity market writ large remains unsurpassed,” said Michael Pyle, deputy head of BlackRock’s portfolio management group.

Separately, Li said Treasuries are less attractive than US stocks because Trump’s trade war may boost inflation, which means investors are pricing in too many Federal Reserve interest-rate cuts. Also, the tax bill that Congress is debating is likely to add to the already elevated US debt burden, putting more pressure on long-term bonds, according to Li. That makes US bonds less reliable as a hedge in a portfolio, she said.

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Instead, US investors should consider European debt on a currency-hedged basis, an approach that offers higher yields than in their home market, Li said.