By Davide Barbuscia
NEW YORK (Reuters) -BlackRock expects the artificial intelligence boom to continue to boost U.S. stocks next year and support economic growth more broadly, although rising U.S. government debt levels could threaten its upbeat 2025 forecasts.
Innovations in AI technology will likely benefit U.S. stocks more than their European peers, while private markets will increasingly play a key role in financing AI-related infrastructure, the BlackRock Investment Institute, a research arm of the world's largest asset manager, said on Wednesday.
"We stay risk-on ... and go further overweight U.S. stocks as the AI theme broadens out," it said in a 2025 outlook report based on views of senior portfolio managers and investment executives at BlackRock, which manages $11.5 trillion in assets.
While U.S. economic growth may cool a little next year, the Federal Reserve will likely not be able to meaningfully lower interest rates as inflation remains sticky and above the central bank's target, the institute said. It does not expect interest rates to go below 4% from their current 4.5%-4.75% range.
Continued price pressures due to factors such as geopolitical fragmentation and infrastructure expenditure could weigh on the bond market.
"We're watching very closely rate repricing dynamics, we're also watching very closely tariffs announcements that can lead to higher inflation expectations and markets volatility," BlackRock Chief Investment Strategist Wei Li said on Wednesday.
Investors will likely demand higher compensation to hold long-term government debt to account for inflation and wide U.S. deficits, the institute said. This will put upward pressure on long-term Treasury yields, which move inversely to prices.
"We are underweight long-term U.S. Treasuries on both a tactical and strategic horizon – and we see risks to our upbeat view from any spike in long-term bond yields," it said.
BlackRock prefers U.S. corporate debt over Treasuries, as well as government bonds in other developed markets such as the United Kingdom, where the Bank of England will cut interest rates more than what the market is pricing, the institute said.
In stocks, it favors sectors such as tech and healthcare, while it sees assets like gold and bitcoin as alternatives to government bonds to offset stock market declines.
BlackRock this week announced plans to buy credit investment manager HPS Investment Partners for about $12 billion, in a deal that will further its offerings in private credit, a key area of growth for the New York-based asset manager.
The institute said private markets can offer exposure to companies driving AI adoption and to infrastructure projects.
Amanda Lynam, head of macro credit research at BlackRock, said on Wednesday global private credit assets under management are expected to roughly double to $4.5 trillion by 2030.
"We are not at all, in our view, saturated, even in the North American market, which is the largest. We see a lot of room for growth in these markets," she said.