US equities are entering the final quarter of 2026 with the S&P 500 on pace to deliver a fourth consecutive year of double-digit returns, a milestone that has been achieved only three times in the past century, according to BlackRock Fundamental Equities.
Carrie King, the firm's global chief investment officer for fundamental equities, noted that historical patterns suggest a strong first three quarters often precede further gains in the fourth quarter, which has typically been the strongest period for US stocks. However, she cautioned that investors should evaluate current economic and market conditions rather than rely solely on past trends.
AI Investment Payback Period Shortens
BlackRock sees evidence that massive spending on artificial intelligence infrastructure is starting to yield financial returns. The firm's Global Technology team estimates that AI computing infrastructure investments by hyperscalers and AI cloud providers can now achieve payback in less than three years, down from up to four years just months ago.
Revenue growth at major cloud providers accelerated in the second quarter, with growth rates doubling year-over-year. This suggests businesses are increasingly adopting AI services, helping justify continued capital expenditure. BlackRock projects AI infrastructure investment could exceed $10 trillion by 2030 as demand for AI tokens and computing power expands.
The benefits are spreading beyond infrastructure providers. The number of large-cap US companies citing AI-related financial improvements rose 77% over the past year, indicating that adopters are beginning to see productivity gains and new revenue streams.
Earnings Growth Could Extend Into 2027
Corporate earnings provide another pillar of support. Consensus estimates point to a third consecutive year of double-digit earnings growth for the S&P 500 in 2026, a run not seen in two decades, with early forecasts suggesting the streak could continue into 2027. Longer-term expectations are also elevated, with five-year forward earnings growth estimates at 18% versus a historical average of 12%.
Outside the US, Europe is recording its strongest earnings growth in three years, while emerging markets are forecast to deliver nearly 50% earnings growth in 2026, led by South Korea and Taiwan. This broadening of earnings growth could reduce reliance on a handful of large technology companies.
Cyclical Opportunities Beyond AI
BlackRock also sees a cyclical recovery developing in the US, creating opportunities in sectors not directly tied to AI. Industrials, financials, and non-AI analogue semiconductors are showing improvement. Logistics, airlines, and packaging companies are seeing better earnings prospects, while analogue chipmakers could benefit from an industrial recovery and improving inventory cycles.
Major US banks are benefiting from investment banking, trading, and capital markets activity, alongside subdued loan delinquencies and a recovery in loan growth. Consumer finance companies could see earnings accelerate as credit conditions normalize and funding costs decline.
Japan and Europe Offer Diversification
Outside the US, BlackRock is particularly interested in Japan and Europe, which have delivered strong equity performance without relying on the same scale of AI investment. Japan's year-to-date return stands at 21%, compared with around 13% for both the US and Europe. The country is undergoing structural reforms, and a substantial proportion of Japanese stocks still trade below book value, potentially creating opportunities.
In Europe, improving earnings are led by the energy sector, with a greater share of companies positioned to benefit from rising energy and infrastructure investment associated with AI development. European stocks trade at a 25% discount to their US counterparts, offering a way to complement US technology-heavy portfolios.
Despite the constructive outlook, King emphasized a risk-aware approach, noting that investors must remain vigilant about potential headwinds.
This article is for informational purposes only and does not constitute financial advice.
