Key Takeaways
- • U.S. equities are hitting new highs despite Strait of Hormuz closure and deepening supply chain disruptions, driven by surging earnings expectations tied to AI-driven productivity gains and capital-intensive infrastructure rebuilding.
- • S&P 500 earnings growth expectations for Q1 have doubled to 28% since early April, indicating market pricing reflects both AI benefits and energy cost impacts rather than a fundamental disconnect between equity valuations and macro conditions.
- • BlackRock's Investment Institute maintains an overweight stance on U.S. and emerging market equities while remaining underweight long-term U.S. government bonds, citing upward pressure on yields from heightened capital demand and sticky inflation stemming from energy disruptions.
- • Sharp regional and sector performance dispersion outside the U.S. contrasts with resilient domestic equity performance, with vulnerable regions including parts of Asia advancing due to AI theme strength despite energy disruption exposure.
- • A prolonged closure of the Strait of Hormuz poses a key fragility that could shift the investment narrative if energy flow disruptions persist beyond current expectations.
Summary
U.S. stock indexes are trading at record highs despite significant macroeconomic headwinds, including the effective closure of the Strait of Hormuz and widening supply chain disruptions. Rather than signaling a market disconnect, BlackRock's Investment Institute argues this performance reflects rational pricing of offsetting forces: substantial AI-driven earnings acceleration paired with the tangible cost impact of energy supply constraints.
The most striking data point is the surge in earnings expectations. S&P 500 first-quarter earnings growth forecasts have doubled to 28% since the beginning of April, according to BlackRock's weekly market commentary. This dramatic upward revision is underpinning equity valuations even as macro conditions deteriorate. The market is not ignoring disruptions; instead, it is weighting the transformative earnings power of artificial intelligence deployment more heavily than traditional supply-side shocks.
Energy cost inflation from the Hormuz closure is feeding into already-sticky inflation readings, which in turn has pushed government bond yields higher. This yield pressure is being reinforced by heightened demand for capital across the economy, much of it directed toward capital-intensive AI infrastructure buildout and critical infrastructure reconstruction. The interconnection between energy disruptions, inflation dynamics, and investment demand creates a coherent narrative that explains why equities and credit markets remain resilient despite elevated commodity prices and bond yields.
However, geographic performance tells a more nuanced story. Sharp dispersion in regional and sector stock performance is evident outside the U.S., with some energy-vulnerable markets—particularly in Asia—powering ahead due to AI thematic strength. BlackRock maintains an overweight allocation to U.S. and emerging market equities while remaining underweight long-term U.S. government bonds, favoring shorter- and medium-term Treasury duration for income generation. The firm flagged that a prolonged Strait of Hormuz closure represents a key fragility; if energy supply disruptions persist beyond near-term expectations, the pro-risk positioning may require reassessment.
The most striking data point is the surge in earnings expectations. S&P 500 first-quarter earnings growth forecasts have doubled to 28% since the beginning of April, according to BlackRock's weekly market commentary. This dramatic upward revision is underpinning equity valuations even as macro conditions deteriorate. The market is not ignoring disruptions; instead, it is weighting the transformative earnings power of artificial intelligence deployment more heavily than traditional supply-side shocks.
Energy cost inflation from the Hormuz closure is feeding into already-sticky inflation readings, which in turn has pushed government bond yields higher. This yield pressure is being reinforced by heightened demand for capital across the economy, much of it directed toward capital-intensive AI infrastructure buildout and critical infrastructure reconstruction. The interconnection between energy disruptions, inflation dynamics, and investment demand creates a coherent narrative that explains why equities and credit markets remain resilient despite elevated commodity prices and bond yields.
However, geographic performance tells a more nuanced story. Sharp dispersion in regional and sector stock performance is evident outside the U.S., with some energy-vulnerable markets—particularly in Asia—powering ahead due to AI thematic strength. BlackRock maintains an overweight allocation to U.S. and emerging market equities while remaining underweight long-term U.S. government bonds, favoring shorter- and medium-term Treasury duration for income generation. The firm flagged that a prolonged Strait of Hormuz closure represents a key fragility; if energy supply disruptions persist beyond near-term expectations, the pro-risk positioning may require reassessment.
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