Blackrock Co-CIO Jeff Shen stays upbeat on U.S. stocks, sees opportunities abroad

BlackRock's Jeff Shen maintains a constructive outlook on U.S. equities for the next 6-12 months, citing AI-driven capital expenditure and supportive policies, despite the S&P 500's over 17% year-to-date gain and stretched valuations. However, he suggests international markets, including Europe and Asia, offer more compelling opportunities as they are poised to benefit from a global easing cycle and the broader AI investment boom, with several international indices already showing strong year-to-date performance.

Analysis

BlackRock's Jeff Shen maintains a constructive outlook on U.S. equities for the next 6-12 months, driven by fundamental capital expenditure related to artificial intelligence and potential productivity growth. The S&P 500 has already surged over 17% year-to-date, reaching record highs, fueled by AI optimism and anticipated rate cuts. Supportive policy and easing geopolitical tensions are also cited as positive factors for continued, albeit slower, U.S. market ascent.

Despite the positive drivers, Shen notes that much of the optimism, including expectations for accommodative financial conditions, appears to be already priced into U.S. asset valuations. This suggests that while U.S. stocks may grind higher, the potential for significant upside from current levels could be limited, with growth momentum moderating. The overall sentiment is mixed with a cautious tone, reflecting these valuation concerns.

Shen identifies international markets, specifically Europe and Asia, as offering more compelling investment opportunities. These regions are poised to benefit from a global easing cycle and the broader AI-driven investment boom, potentially playing catch-up to U.S. performance. Key international indices like Europe's Stoxx 600 (up 13.4% YTD), the Shanghai Composite (up 19.8% YTD), and the Nikkei 225 (up 28.6% YTD) have already demonstrated strong year-to-date performance.

Key Decisions for Investors

• Consider rebalancing portfolios to increase exposure to international markets, particularly in Europe and Asia, to capitalize on potential catch-up growth and the global easing cycle.
• Evaluate U.S. equity positions for stretched valuations, acknowledging that significant AI and rate cut optimism may already be priced in, and monitor for moderating growth momentum.
• Focus on companies with strong fundamental capital expenditure stories related to AI across geographies, while being mindful of geopolitical developments and monetary policy shifts.