Transcription
BlackRock is the world's largest asset manager, and some would argue it's the most powerful company on Earth. And that's because when you hold nearly $14 trillion of assets, you have a lot of influence.
Recently, BlackRock published a report about its outlook for 2026. To some, this is just another financial forecast from Wall Street. To others, it's not just another prediction. It's a road map for what's to come. And that's why today we're going to summarize BlackRock's outlook for 2026 and tell you exactly what it means for the markets. My name is Nick, and this is a video you do not want to miss.
I'll start by saying that nothing in this video is financial advice. It's just educational content intended to inform you about one of BlackRock's recent reports. If this is the kind of content you enjoy, smash that like button to let us know. And if this is the kind of content you want to see more of, then subscribe to the channel and ping that notification bell so you don't miss the next one.
Now, the report we'll be summarizing today is titled, "2026 Global Outlook: Pushing Limits." It was written by nearly a dozen BlackRock executives and published earlier this month. We'll just be giving you the highlights in today's video, but you can read the full report for free using the link in the description.
The report starts by looking at the most popular topic in finance, which is obviously AI. The report's authors reveal that the buildout of AI could be bigger and faster than any other technological advancement in recent centuries, with spending on AI development estimated to average $5 to $8 trillion per year globally until 2030. They do acknowledge that a lot of the spending will come from issuing debt. As some of you may have heard, lots of large tech companies have started issuing bonds to fund their AI development. And some of the yields on these bonds have started rising. And this basically means investors are starting to become skeptical that AI will deliver the productivity gains and capital returns promised by these tech companies.
Not surprisingly, BlackRock believes that AI will do just that. What is surprising is that BlackRock believes that productivity gains from AI would cause US economic growth to break out of its annualized growth trend of around 2% per year, a trend which stretches back 150 years. The authors acknowledge that previous technological advancements didn't increase this average growth rate, but believe that AI will. In other words, they believe that this time is different.
To be fair, they do make a compelling argument for this. "AI is not only an innovation itself, but has the potential to innovate the process of innovation. AI could begin to generate, test, and improve new concepts on its own. If that happens, the rate of discovery could accelerate, driving scientific breakthroughs such as in materials, drugs, and technology." So far, this seems to be limited.
In any case, you're probably wondering what all of this means for employment, especially since we keep seeing headlines about companies firing people because they're supposedly being replaced by AI. Thankfully, the analysts at BlackRock are smart enough to see that these headlines don't tell the full story. They highlight the fact that the US jobs market is in a "no hiring, no firing state" for right now. And this means that many companies are opting to use AI instead of hiring inexperienced employees, but are simultaneously holding on to their more experienced people. And this is presumably because they've seen what happened to companies that tried to fire most of their employees and replace them with AI. It didn't exactly work out, and they had to hire them all back. Best to play it safe, uh, so to speak.
Regardless, what's funny is that the authors of the report parrot another talking point you hear from the AI crowd, and that's that there will be "new pools of revenue in the tech sector and beyond." Just like all the others in the AI crowd, the authors admit that they have no idea what these new pools of revenue will look like. But nonetheless, they say they're on the lookout for these future winners.
Naturally, BlackRock will "stay risk on and overweight US stocks on the AI theme on the grounds that this is where the biggest opportunities will be." And this actually underscores something that we explained in a recent video, and that's that modern-day investing is all about flows. If all the money is flowing into AI, then that's where you need to allocate, even if there's a bubble. And you can learn more about passive versus active flows using the link in the description. And while you're down there, sign up for our free weekly newsletter and check out some of our finance-related deals we have for our viewers. Just click the link in the description or scan this QR code. You don't want to miss what we have on offer. Back to the video.
Now, you'll recall that large tech companies have started issuing bonds to fund their development of AI. The authors zoom in on this new trend and explain that it could cause interest rates to rise. And that's because as profitable tech companies start issuing bonds, there will be more competition against other forms of debt, namely US bonds, which is why the authors reveal they are underweight US bonds. And this is actually very interesting if you think about it, because the authors are essentially implying that the bonds being issued by tech companies could compete with bonds being issued by governments.
Now, for context, interest rates are partially determined by government bond yields, and government bond yields are determined by price, with a lower price resulting in a higher yield, and prices being determined by supply and demand. Uh, put simply, more high-quality corporate bonds from tech companies will result in less government debt being bought. And that means government bond yields will rise, and interest rates will rise by extension. And what's crazy is that the authors believe that this effect on interest rates could be so extreme that it could slow other sectors of the economy and even make the markets more vulnerable to exogenous shocks.
Naturally, BlackRock will be overweight tech company bonds and underweight government bonds unless their yields rise. And some would argue that by disclosing this, BlackRock is encouraging other investors to create the exact kinds of conditions it's warning about. Remember that BlackRock is the world's largest asset manager. Investors watch them closely.
Whatever the case, the report's authors switched to something else we talked about in our video about passive versus active investing, and that's diversification, or rather the lack thereof. They correctly point out that all attempts at diversifying away from US stocks, particularly US tech stocks, have resulted in lower returns. And that's just because most of the passive flows continue going into the larger stocks in the S&P 500. And what's scary is that the authors caution that any attempt at diversifying away from large US tech stocks is probably futile, because if markets start falling for whatever reason, everything will fall. They even go as far as to argue that US bonds no longer provide the diversification they once did, and point to the recent rise in gold as proof that investors know this, but warn that gold might not be a diversifier either. Again, that's just because if markets start falling for whatever reason, everything will fall, including gold. At the same time, the authors aren't confident that US bonds will rally in such a scenario.
So, what's the alternative? Of course, BlackRock's analysts suggest that investors allocate to private credit instead, a sector of the markets which is looking increasingly unstable and could actually cause the next crisis. And you can learn more about that in this video over here.
Anyways, the authors then pivot to another hot topic related to AI, and that's energy. In case you missed the memo, the buildout of AI is starting to cause energy prices to rise in many countries and regions, and it's becoming apparent that energy is one of the biggest constraints to continued growth. What's insane is that AI is projected to use 15 to 20% of the US energy grid by 2030, which is just mind-boggling.
As expected, the authors give praise to China, seemingly implying that China will win the AI race because it's capable of scaling its energy and land use faster than the US and its allies. For reference, BlackRock CEO Larry Fink infamously said that markets prefer totalitarian governments because they provide certainty and that democracies like the US are "very messy" in a 2011 interview with Bloomberg. Lo and behold, the authors discuss the rivalry between the US and China in the very next section, but they shy away from saying which side they think will win. And we reckon Larry's comments make it clear.
Oddly enough, the authors spend almost half of this section explaining how Europe is in deep trouble and how increasing military spending will somehow resolve the growing number of issues it faces. And you can learn more about that in this video over here.
Moving on now, halfway through the report, the authors finally stop talking about AI and start talking about another hot topic for 2026, and that's digital assets and tokenization. They start by explaining how much stablecoins have grown and why they're likely to continue growing thanks to the "Genius Act." Uh, they do note that the growth of stablecoins could in fact have a negative impact on banks, but they're not quite sure how. What they are sure about is that stablecoins are a step towards the tokenized financial system that BlackRock is becoming obsessed with.
Now, for those unaware, BlackRock has been tokenizing assets like US bonds on public blockchains like Ethereum. And these tokenized assets will trade against stablecoins, which is why the authors see them as such a critical asset class. Officially, tokenizing assets is more efficient as it effectively cuts out the middlemen involved in the existing financial architecture, allowing for near-instant settlement. Unofficially, uh, tokenizing assets also gives an incredible amount of surveillance and control to the issuers of the assets, asset managers such as, uh, BlackRock. Depending on how this emerging industry evolves, it could either be utopian or dystopian.
Anyhow, next, the authors talk about another one of BlackRock's favorite topics, and that's private credit. Now, they begin by acknowledging what everyone else already knows, and that's that things in private credit are not going so well these days. Even though larger players in private credit have been resilient to headwinds like high interest rates and tariffs, smaller players are getting carried out, and it's causing a lot of concern. As you might have guessed, the analysts at BlackRock say, "While pockets of stress are evident, we think they are concentrated, not contagious." As it happens, former Fed chair Ben Bernanke famously said the exact same thing about subprime mortgages just before the bubble burst in 2007.
If that wasn't wild enough, the authors almost seem to suggest that retail investors are contributing to the volatility. And this is a bit ironic considering that it's asset managers like BlackRock who are actively encouraging retail investors to get involved in private credit. Hypocrisy aside, the authors turn back to the topic of infrastructure and this time focusing on assets that aren't necessarily related to energy. And what's fascinating is that they found that infrastructure, think roads, bridges, railways, and ports, are trading at historic discounts. They see this as a buying opportunity, but gloss over the reason why there's been less private investment in infrastructure. When you invest in infrastructure like a road or a bridge, you're going to be waiting years, sometimes decades, for it to be built. And the profitability of such investments is uh questionable. And this means your money is locked up for a long period of time with a relatively low chance of return compared to other assets on offer.
Now, for what it's worth, the authors say that investing in infrastructure bonds is a more liquid alternative. And this ties into another related topic, and that's emerging markets. As you might have heard, assets in emerging markets such as stocks and bonds have performed well this year. The authors explained that this is largely because the US dollar was weakening and emerging market currencies were strengthening. Whereas many asset managers still see emerging markets as a good investment, BlackRock does not. The authors explain that this is largely because the trend of the US dollar weakening and emerging market currency strengthening has largely run its course.
What's bizarre though is that they go on to claim that they "don't see a clear direction for the US dollar." Logically, this suggests that they expect to see the US dollar stay roughly flat for 2026, which seems very unlikely in our view. On the one hand, upcoming changes to the Federal Reserve could result in a weaker US dollar, specifically the appointment of Kevin Hassett, who seems to be the frontrunner as the next Fed chair. On the other hand, more influence over the Fed by the Trump administration could mean that it starts weaponizing the US dollar to get concessions in lieu of tariffs by say, uh, restricting central bank swap lines. It's odd that the authors didn't discuss these nuances, but in their defense, they only had about a page to discuss each theme.
At the end of the report, the authors conveniently break down the key takeaways as they relate to their market outlook and positioning. In short, they are bullish on the US, neutral on emerging markets, bearish on Europe, bullish on Japan, and even more bullish on India due to its demographics. In terms of investments, AI continues to be the focus, as well as select assets in emerging markets. BlackRock sees gold as a hedge, but only in the short term. And what's hilarious is that the authors advise investors to come up with their own "plan B portfolio" without providing any guidance. All they say is to be on the lookout for those anomalous future winners of AI, consider private credit and infrastructure investments, and to be selective about which assets investors allocate to regardless of the market.
The authors provide this handy chart to show their opinion about the markets more broadly, but it doesn't really tell us much. As you can hopefully see, BlackRock seems to be neutral on just about everything, with only slightly positive views about some markets like the US and only slightly negative views on some assets like US bonds. You'd think they would have some higher conviction plays.
And this brings me to the big question, and that's what BlackRock's 2026 outlook means for the markets going forward. And if you've been paying attention, you'll already know the answer. It looks like next year will be the same as this year. Money will keep flooding into US tech stocks, with gold being used by investors as a hedge in lieu of treasuries. It sounds like this will continue until something slows down or breaks.
Now, to refresh your memory, the authors of the report believe it's possible that the relentless buildout of AI could backfire if more tech companies keep issuing bonds, which is exactly what they seem to be planning on doing. A massive increase in the number of relatively safe corporate bonds could practically siphon away some of the capital that would have otherwise gone into US bonds, causing yields to rise. There's just one small factor the authors seem to have missed, and that's that the first government bonds to be affected wouldn't be US bonds, they would be foreign bonds. After all, US bonds are seen as the safest government bond there is. And this means that if big tech bond issuance starts competing with capital going into government bonds, it's the bonds of other countries that will be the most affected. And this means that bond yields and interest rates in these other countries would rise, creating headwinds for their economies and markets. In turn, this would cause large investors like, uh, BlackRock to pull money out of these economies and markets and redirect this capital into US assets, mostly tech stocks. And that would further amplify the underlying dynamic, creating a negative feedback loop that's truly deadly.
We could end up in a situation where corporate bond issuance related to AI spending in the US literally drains liquidity from the world's markets and economies. And it's possible we're already seeing early signs of this. Consider that government bond yields have already been rising globally, and that foreign capital continues to flow into the US at an accelerated rate. The worst part is that this could accelerate further, and that's just because the imperative of asset managers like BlackRock is to make a return for their clients. So when a certain asset class starts struggling, asset managers look around to see where they can reallocate their capital to continue making returns. They all see the same thing: US AI stocks seem to keep going up. So let's invest there. And this, of course, causes the prices of these assets to go even higher. Then investors see that BlackRock is doubling down on AI for 2026, so they follow suit, which pushes US AI stocks beyond levels that anyone thought was possible. Asset managers and investors continue following the trend until it becomes unsustainable and it all falls apart.
And that's a long-winded way of saying that 2026 is going to see US tech stocks growing even larger and more dominant on a global scale. What will stop this trend? Oh, it's anyone's guess, but it appears that BlackRock's analysts know what will happen when it does. There will be nowhere to hide, because the collapse of AI stocks will take everything else with it: global markets and the global economy.
From our perspective, there may only be one place to keep your capital safe: an asset that investors avoid, and that's cold, hard cash. And if you want a deeper dive into whether AI could in fact be in a bubble, then you could watch our video on that right over here. And if you're not subscribed to the channel yet, why not? You can do that right over here. This is Nick signing off. Thank you guys very much for watching, and I'll see you in the next video.