US stocks may have seen immense volatility lately but they are heading into the final quarter of 2026 after a strong run, with the S&P 500 on track for a fourth consecutive year of double-digit gains, according to BlackRock Fundamental Equities.
Such a streak has occurred only three times in the past 100 years, it says.
Carrie King, managing director and global chief investment officer of BlackRock Fundamental Equities, said historical patterns suggest a strong first three quarters more often precede further gains than a reversal during the final quarter.
The fourth quarter has also typically been the strongest period of the year for US equities.
However, King said investors must assess the specific economic and market conditions shaping the outlook rather than rely solely on historical trends.
Four questions are particularly relevant as investors position their portfolios for the remainder of 2026: whether artificial intelligence spending is generating returns, how long earnings growth can continue, where opportunities are emerging beyond AI and which international markets offer attractive prospects.
AI investment begins to show returns
BlackRock sees evidence that the enormous investment in artificial intelligence infrastructure is beginning to generate financial benefits.
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, compared with periods of up to four years just months ago.
Revenue growth at major cloud providers accelerated in the second quarter, with the growth rate twice that of the year-earlier period.
This suggests businesses are increasingly using AI services, helping justify continued investment in computing capacity.
The spending requirements remain substantial.
AI infrastructure investment is estimated to exceed $10 trillion by 2030 as demand for AI tokens and the computing power needed to generate them expands.
The benefits are also spreading beyond infrastructure providers.
The number of large-cap US companies citing AI-related financial improvements increased by 77% over the past year, according to the figures cited by BlackRock.
That trend suggests companies adopting AI are beginning to realise productivity gains, improve competitiveness and generate additional revenue, potentially sustaining the next phase of investment.
Earnings growth could support equities into 2027
Corporate earnings provide another source of support for the market outlook.
Consensus estimates point to the third consecutive year of double-digit earnings growth for the S&P 500 in 2026, a run not seen in two decades.
Early forecasts suggest the streak could extend into 2027.
Longer-term expectations are also elevated.
Five-year forward earnings growth estimates stand at 18%, compared with a historical average of 12%, according to BlackRock.
The outlook is constructive outside the US as well.
Europe is recording its strongest earnings growth in three years, while emerging markets are forecast to deliver earnings growth of nearly 50% in 2026.
South Korea and Taiwan, both beneficiaries of AI-related demand, are expected to contribute significantly to that performance.
The breadth of earnings growth matters because it could help reduce reliance on a narrow group of large technology companies to drive equity market returns.
Cyclical sectors offer opportunities beyond AI
BlackRock also sees a cyclical recovery developing in the US, creating opportunities in sectors that are not directly tied to artificial intelligence.
Industrials, financials and non-AI analogue semiconductors are showing signs of improvement.
While companies supplying equipment and services for AI data centres have attracted considerable investor attention, King sees improving earnings prospects in traditional cyclical businesses, including logistics, airlines and packaging.
Analogue semiconductor companies could benefit from an industrial recovery and improving inventory cycles.
Financial companies also have several potential tailwinds.
Major US banks are benefiting from investment banking, trading and capital markets activity, alongside subdued loan delinquencies and a recovery in loan growth from depressed levels.
Consumer finance companies could see earnings accelerate as credit conditions normalise, funding costs decline and consumer spending remains resilient.
These areas offer investors opportunities to participate in broader economic growth without concentrating their exposure entirely in AI-related stocks.
Japan and Europe provide 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 driving US markets.
Japan’s year-to-date return stood at 21%, compared with gains of around 13% for both the US and Europe, according to the figures cited by BlackRock.
The country is undergoing structural reforms supported by government and corporate initiatives. BlackRock’s Japan team also finds that a substantial proportion of Japanese stocks continue to trade below book value, potentially creating opportunities for investors.
Specialty materials companies supplying the AI infrastructure buildout are another area of interest.
In Europe, improving earnings are being led by the energy sector.
The region has a greater share of companies positioned to benefit from rising investment in energy and infrastructure associated with AI development.
European companies also generate a significant portion of their revenue outside the continent, providing exposure to a broader range of economic drivers.
BlackRock sees European equities as a way to complement US technology-heavy portfolios, with European stocks trading at a 25% discount to their US counterparts.
BlackRock favours a risk-aware approach
Despite the constructive outlook, King cautioned that investors must remain alert to geopolitical uncertainty, Federal Reserve policy, the effects of higher interest rates on long-duration assets and the sustainability of earnings growth beyond AI.
The combination of elevated market expectations and concentrated investment in certain themes makes diversification and stock selection particularly important.
BlackRock’s position is to remain constructive on equities while acknowledging that volatility could persist through the fourth quarter and beyond.
The firm believes an active, fundamentals-driven investment approach can help investors navigate market fluctuations while seeking opportunities across sectors and regions.
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