BlackRock Turns More Cautious on U.S. Stocks, Favors Short-Term Treasurys

BlackRock has become more cautious about US stocks, downgrading its investment outlook on equities while increasing its preference for short-term US Treasury securities as higher yields improve their appeal.

BlackRock has adopted a more cautious stance on US equities while increasing its preference for short-term US Treasury securities. [Photo: Anthony Quintano Flickr]

The BlackRock Investment Institute, the asset manager’s research arm, announced the changes in an outlook prepared by Jean Boivin, Rick Rieder and Wei Li, Yahoo Finance reporter Brian Sozzi reported.

The team moved its view on US stocks to neutral from overweight, citing the potential for volatility as investment in artificial intelligence expands.

It also upgraded its view on US Treasurys, favoring short-term bonds.

“Higher yields and potentially excessive Fed tightening expectations create room to unwind our US Treasury underweight — a mainstay for most of the last six years,” the strategists said.

They added that the firm was taking profits on US equities and moving to a neutral stance to manage potential volatility surrounding the AI buildout.

Despite the more cautious outlook on the broader stock market, BlackRock said it remained confident in the fundamentals of artificial intelligence and continued to favor AI-related investments within US equities.

The change comes as rising Treasury yields increase borrowing costs and place pressure on companies whose expected growth may be less robust than that of leading AI businesses.

Higher yields can make government bonds more attractive relative to stocks by improving the income available to investors.

They can also increase the discount rates used to value future corporate earnings, putting pressure on equity valuations.

BlackRock’s revised outlook signals greater caution about the wider US stock market, rather than a wholesale retreat from equities or a rejection of the long-term AI investment theme.