245. Stock Picker's Guide to 2026: How AI and Earnings Will Shape Stock Market Trends
Episode description:
AI investment, evolving earnings leadership, and shifting global dynamics are redefining stock market trends as investors enter 2026. Companies are deploying unprecedented capital toward data centers, compute, and productivity-enhancing technologies, while rate cuts and supply-chain realignment reshape the macro backdrop. These forces are changing how fundamentals, valuations, and sector growth patterns show up in equity markets.
In this episode of The Bid, host Oscar Pulido speaks with Carrie King, Global CIO of BlackRock’s Fundamental Equities group, about the major drivers influencing the 2026 equity outlook. Carrie breaks down why high-level valuations may mask improved corporate quality, how AI-related investment is broadening beyond semiconductors, and why the gap between megacap earnings and the rest of the market may begin to narrow.
They also explore how global monetary easing is benefiting emerging markets, why Japan’s structural reforms continue to support its equity story, and how diversification is becoming more challenging in a market shaped by a few powerful megaforces. Carrie explains what this means for sector positioning, volatility, and where long-term investors may find underappreciated opportunities.
Key insights include:
How AI-driven spending is reshaping earnings patterns and stock market trends
Why equity valuations may be better anchored than headlines suggest
Where the other 493 may see accelerating earnings growth
How global rate cuts and supply-chain shifts are supporting EM and Japan
Why diversification requires new approaches in a megaforce-driven market
Which sectors—industrials, travel, and healthcare—may offer overlooked potential
Keywords: stock market trends, AI investing, megaforces, capital markets, equity markets, global investing, sector rotation
Sources: Data from Bloomberg as at 12/16/2025; BlackRock Fundamental Equities, with data from FactSet as of November 30, 2025; BlackRock Fundamental Equities, with data from Bloomberg as of November 30, 2025; IBM Study: CEOs Down on AI While Navigating Enterprise Hurdles, Institute for Business Value survey of 2,000 CEOs globally, May 6, 2025; BlackRock Equity Market Outlook, Q1, 2026; Yahoo Finance, October 2025; Reuters October 2025; Central Bank Rates
Written Disclosures In Episode Description:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to any company or investment strategy mentioned is for illustrative purposes only and not investment advice. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.
<<TRANSCRIPT>>
Oscar Pulido: After three straight years of robust returns, investors are asking, can stocks maintain their momentum in 2026? This year's backdrop looks very different from the one that carried markets higher in 2025. AI continues to reshape corporate strategy, but the story is no longer just about technology leadership. It's about the scale of capital being deployed, the pressure it places on balance sheets, and the way this spending is beginning to shape the broader economy.
Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.
Today, Carrie King, Global Chief Investment Officer of BlackRock's Fundamental Equities group, joins us to explore the opportunities and risks that may lie ahead. We'll talk about whether AI can live up to the expectations baked into today's valuations. How companies are navigating a period of high investment and evolving macro conditions, and where Carrie sees opportunities emerging, both within and beyond AI.
Carrie, thank you so much for joining us on The Bid.
Carrie King: Thank you for having me.
Oscar Pulido: So, Carrie, US stocks finished the year with double digit gains. Once again, it didn't necessarily feel like we'd get to that, given all the concerns around tariffs and the occasional fatigue around AI and the pullbacks that we saw in some of the AI related names. So as we look ahead to this year, what do you foresee for the stock market in 2026?
Carrie King: Oscar, I'm sanguine about the stock market in 2026, and let me explain to you why. Let's decompose the drivers of stock market returns. One is what will the earnings growth rate be? And two is what kind of multiple will investors be willing to put on that?
The growth rate, of earnings will be based on fundamentals, which I think have a very strong outlook next year. We've got AI spending; we've got fed cuts. And I think the multiple is causing a lot of consternation for some market observers. It's a seemingly high 22 times earnings today, which reminds people it's the same level it was at the peak of the.com bubble. And that didn't end well! But let me dispel why we should have any concern about that.
Number one is that high PE multiples in and of themselves do not derail bull markets. And number two is, if you look at the quality of companies today, they're deserving of a higher multiple. The quality of companies has never been higher than it is today. And if we compare companies today. That compared to the.com bubble era, we think there's an adjustment to the PE multiple to account for that higher quality. So, we think the PE multiple is really something closer to 17 times earnings, which is a long-term average.
So, 17 multiple on earnings, which is a long-term average on earnings per share growth, which should sustain in the mid-teens. Which is an above average, growth rate. I think that's a very strong setup for positive returns in 2026.
Oscar Pulido: You talked about AI, and we have to talk about it. It's a theme that, has become very persistent. Do you still think that the AI theme is going to be what dominates the markets in 2026, as was the case in the last couple of years?
Carrie King: So Oscar, let's level set on exactly what we mean when we're talking about AI, will it dominate? Let's go back to 2022 in November when ChatGPT first burst onto the scene seemingly out of nowhere. The first order of business was to invest in what was most obvious, which was, the benefit accruing to, let's call it the picks and shovels. So the semiconductor, the semi cap equipment companies. And let's talk about Nvidia as an example. In November of 2022, Nvidia was $12 per share. Today it's about $180. So a 15-fold increase in a few short years. NVIDIA's revenues coming into 2023 or the AI era, were $27 billion. Next year they're set to be $320 billion, so a 12-fold increase. Consider that during that period we have seen a 1500 basis point expansion in the gross margin for the company, amazing! Now, do we think we will see that magnitude of improvement and change in the future as we've seen in the past? I don't think that's on deck for us.
Let's look at the second order of investment, in AI last year, 2025, we saw that enthusiasm spread beyond the picks and shovels to the data centers and the data center build out, which drove shares of utilities, power companies, industrials, companies involved in lighting, air conditioning components. So, 2026, will AI dominate the conversation? Yes, I think AI will dominate the conversation, but will the AI beneficiaries be a different bucket of companies? And I think that is very likely, or there will be an additional bucket of companies.
So I think we may go from focusing on the CapEx, the spending, the revenue to the cost savings, the efficiency gains, and the operational optimizations. So yes, AI will continue to dominate, but as it evolves, the beneficiary may, beneficiaries may be a different group of companies.
Oscar Pulido: AI, as a mega force, starts to touch a lot of different companies in a lot of different ways, and so a lot of different ways to benefit from that theme. That theme, as you know, is also very prominent in the BlackRock Investment Institute's 2026 outlook. When we spoke to Jean Boivin, he talked about AI as the micro becoming the macro, meaning that the capital expenditures that we're seeing, towards the build out of artificial intelligence now has a direct impact on economic growth, and it's been one of the things keeping the economy afloat. There's some concern that if those investments don't go as planned, they could not only just be bad for the market, they could be bad for the economy. How should investors be thinking about this unprecedented spending?
Carrie King: So, AI is absolutely a generational technology with lasting impact, I think, on the economy and businesses. around the globe, particularly in the US. what I think is inevitable that everyone needs to be aware of and mindful is that I believe there will be a timing mismatch between the spending that is taking place and that will take place and the return on that investment. What will the duration, or timing of that mismatch be? It's really unclear. Therefore, I think it's imperative that all investors, particularly those looking to benefit from ai, prepare for bouts of volatility and stay very firm in a long-term view. and we're seeing already a lot of benefit.
IBM did a survey in May of last year, and what they heard from business leaders and CEOs is that about half of CEOs in varying industries are seeing value from AI beyond just cost reductions. they also noted that 85% of CEOs in this survey expect a positive return on investment in AI by 2027.
And with a little help from AI and fundamental equities, our research shows that twice as many companies in the third quarter noted AI savings and productivity enhancements. Then we saw in the prior year. So, for example, JP Morgan noted $2 billion of expense equaled about $2 billion of benefit. And Citigroup noted that AI was freeing up about a hundred thousand development hours per week. So pretty powerful results coming from AI investment. And then in terms of the build out of AI, what we are starting to see, and there's a lot of discussion about is companies are starting to use leverage. to fund the build out, and that's causing a little bit, raising eyebrows a little bit, I would say. So, we would note that it's the large cap companies with ample free cash flows, I think are the safest way to play this trend.
Oscar Pulido: And one of the trends that I think you're alluding to is AI as a productivity enhancer and in that investment outlook that, BlackRock Investment Institute published. Jean talked about a growth trend in the US that has been consistent for 150 years, which is a 2% economic growth rate. And what he talks about, and I think what you're alluding to is the opportunity to maybe break out of that growth trend and AI could be part of that.
We've been talking about AI, we've been talking about the US, so maybe we can shift gears a little bit because there were some international markets that outperformed the US in 2025. Can you tell us about those and where do you see the opportunities outside the US in 2026?
Carrie King: Sure and absolutely, they definitely were the unsung heroes of 2025. To your point. We see three key areas that have done well and we think are poised to continue to show strength. One of them is in emerging markets. We saw 125 global central banks cut rates in 2025 and that includes some very large emerging market economies like Mexico and Turkey, and Brazil is now seeing lower inflation, which kind of opens the door for Brazil to follow suit.
And of course, US lowering rates, which we just saw, is good for EM. So those are some cyclical tailwinds that we think can keep this trend in place. In addition, there's global friction, across the globe, and redrawing of supply chains continues. And this is creating opportunities for some countries in particular.
So, Korea, for example, is really becoming a powerhouse in battery and memory supply chain. They're owning the space. and Dubai and the UAE is expanding as a global financial center that will bring a, along loads of investment into the area. So, a lot of very exciting things happening beyond EM.
We still like Japan. It's been a trend that's been in place for a bit now, but we see a continuation. we see in Japan decades of deflation turning to inflation. And consider this, over 50% of personal household assets are held in cash in Japan. So we think that going from deflation to inflation will spur economic spending, which will benefit the economy, and it will, let me say that again. We think this will spur consumer spending, which will benefit both the economy. And risk assets beyond just that,, there is tremendous institutional reform pressure in Japan, and where we're seeing that is in corporate governance. We're seeing it in transparency and valuations of companies. We're seeing companies streamline operations, and this is all accruing to shareholders through better pricing of their stocks, better valuations and more cash and dividends being returned to shareholders of Japanese shares.
Oscar Pulido: I'm wondering if we can come back to earnings, because I have to imagine that when you have rates being cut across the globe, that has to be a good catalyst for earnings. You mentioned a very strong earnings picture in 2025. Talk a little bit more about where you see earnings going this year.
Carrie King: I think we can sustain mid-teens growth again in 2026. but I do think it will be different going forward. I think we will see, a different composition of earnings growth across, the S&P 500 as a proxy. And why do I say that? There should be a widening gap between the group of seven companies, the largest companies, in the US that basically dominated all of the earnings per share growth in the US. The gap should widen between them and the other 493 companies. So, these seven companies, which probably heard referred to as a magnificent seven. We think growth, the growth rate will decelerate to about 20% next year. Still extremely strong and healthy. but the peak was 37% in 2024, so a deceleration.
At the same time, we think the other 493 will see an acceleration. And earnings per share growth to the double-digit level from either declining or up low single digits in the past couple of years. And among those other 493, I think the strongest growth we will see coming from technology companies. Industrial companies and materials companies, as you point out, cyclical, tailwind from rate cuts. industrial companies are seeing strong order book growth.
A few of the things I mentioned already, which include reshoring, and the consumer. We hear a lot about the K-shaped consumer economy. the high end is doing well, the low end is doing poor, but what we are seeing is, and there's very good visibility here as we are seeing strong demand for airlines travel, hotels. and if you think about those sectors, just think about yourself personally. Great visibility. I know myself, I have travel booked into the next 12 months. So, there's a lot of visibility on strong demand for travel, and then other pockets of strength should include financials where we should see the benefit of capital markets strength, M&A opening up, less regulation under the current administration. and we're seeing a pickup in lending as well, which continue again with cyclical tailwinds.
And then I like to just mention like one sleeper - healthcare. I've mentioned in this forum a couple of times, we'll call it that I was early, but it's starting to show signs of life. It's been a laggard. I would highlight the shares are very discounted relative to their history. We have seen, and in this category, 80% of companies have guided upward in their guidance, which is more than any other sector. We've got innovation in this sector. We've got strong balance sheets. We have a demographic tailwind and we're starting to see policy concerns start to wind down with the, with, the companies negotiating some pricing control concerns. So, the setup is pretty strong for healthcare as well.
Oscar Pulido: Maybe we can pick up there because it makes me think back to this concept of diversification is hard to find. Again, the BlackRock Investment Institute in its Outlook talks about this diversification mirage, that so many things are tied to the AI theme and the AI build out that where do you go to find diversification? what is that plan B that investors should have as they go into the year?
Carrie King: I love that question. It's fantastic. Everybody should be spending more time thinking about it. And I'll share with you something that I find very interesting. if you think you want to diversify away from growth. It almost feels like why would you ever do that? But there will be a time you need to do it. Value indexes are more growthy today than they have been in a decade. So, if you think you're going to buy a passive value index to diversify yourself away from growth, you need to think again and maybe think about an active value strategy that has value exposure against a value benchmark, if you will. That was a lot of words, but, boiling it down to a point, it's just that a passive index in value may not be giving you the exposure you're expecting.
Oscar Pulido: And value, again, being companies that are typically trading at, PE multiples below the market average. Maybe these haven't been some of the faster growing companies, but they have a bit of a defensive quality if we get into some periods of volatility. I think that's the right way to think about value?
Carrie King: Absolutely.
Oscar Pulido: Carrie, it is the New Year's, we usually have New Year's resolutions that come about. I'd be curious if you have any personal New Year's resolutions, but first let's talk about what resolution you think our listeners could have when it comes to their equity portfolios and just their investment strategy for the year ahead?
Carrie King: Sure. I will share something that I'm always challenging myself, for my two decades of investing. Embrace volatility. Learn to be comfortable with volatility and continue to take a long-term view. I think that's always important. But in the context of this AI conversation, I think it's even more important in today's environment. It's inevitable that volatility will come, but it provides the most fruitful opportunities for investors that are able to take a long-term view. So be comfortable with the uncomfortable.
And on a personal note, I'm going to enter my next decade of trying to give up chocolate once again!
Oscar Pulido: Well, Carrie, we wish you much success with that personal resolution. I myself am going to go back to the tried and tested, make sure I'm getting, exercise in my daily regime that's good for the mind and good for the body as well. But you've given us some great, things to think about with respect to the equity markets. And the thing I keep thinking about is that it looks like the outlook is a very good one that sees performance coming from a lot of different sectors. One where AI is, really impacting a number of areas positively, but the point about embrace volatility- things don't go straight up- so when those, time periods, exist, lean into that. And that's a good time to remind yourself to be a long-term investor.
Carrie, these are great words. we look forward to reviewing them over the course of the year and see how they play out. Thank you for bringing these insights to The Bid.
Carrie King: Thank you very much.
Oscar Pulido: Thanks for listening to this episode of The Bid. On our next episode, I'll be heading back to Davos to hear from Tom Donilon and Philip Hilderbrand, two of BlackRock's key delegates on their impressions from the World Economic Forum.
<<SPOKEN DISCLOSURES>>
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to the names of each company mentioned is merely for explaining the investment strategy and should not be construed as investment advice or recommendation. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.
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