Staying Pro-Risk in a Higher-Rate World: Our Read of BlackRock’s Q4 2025 Outlook

According to BlackRock's Global Outlook Q4 2025 Update, the investor's mantra should still be pro-risk, albeit with precision and purpose. Markets are adjusting to a new environment characterized by higher long-term interest rates and trade dynamics induced by technological change through the rising influence of artificial intelligence. In this context, opportunities are still available, but selectivity is becoming more acute.

At Ballestas Group, this forecast reinforces what we have seen throughout the year: that the world economy is restructuring toward a "new normal" of high cost of capital, slower globalization, and strong innovation-led growth. The successful navigation of this will depend on knowing where to lean in and where to pull back.

Three Major Themes for 2025

BlackRock highlights three key portfolio-shaping themes this year and beyond:

1. Focus on the "here and now."

   Economic realities are changing slowly - trade timelines, supply chain constraints - these render the near-term environment as being more predictable than the long term. For that reason, BlackRock remains bullish on U.S. equities, as earnings strength continues to underpin valuations.

2. Risking without a stable macro anchor.

   The post-COVID economy is different: bigger government debts, restructured trade, and new monetary policies mean investment decisions can no longer rely on the same macro signals of before. That same uncertainty is also opportunity - especially for those with the skill to identify quality assets on a more volatile backdrop.

3. Finding new long-term anchors.

   With traditional ones - low inflation, steady interest rates - just less dependable, BlackRock sees "mega forces" such as AI, demographics, energy transition, and the rewiring of globalization as true engines of returns ahead. Among them, AI remains perhaps the most powerful driver for productivity and corporate earnings.

AI Keeps the Economy Moving

Perhaps the most exciting part of the forecast is how AI investment is actually sustaining the growth of the United States. One now counts capital spending on software, data centers, and also AI processing hardware as meaningfully contributing capital to GDP.

Cooling consumer demand, businesses are nonetheless pouring money into technology infrastructure investment. This has the effect of offsetting cyclical dips and making the economy more resilient than most expected. In a sense, AI is laying the infrastructure for growth across industries.

Inflation, Tariffs, and Rising Long-Term Rates

Inflation is still evolving in unexpected forms. After earlier relief this year, goods inflation has resurfaced, specifically in areas affected by tariff implementation on imported products. At the same time, services inflation has proven sticky due to the wage and housing components; hence, it keeps the central banks exercising caution.

Despite the Federal Reserve beginning to cut short-term rates, long-term interest rates have moved higher. This unusual steepening of the yield curve reflects growing concern over public debt, government spending, and the cost of financing large deficits. Similar trends are visible in other developed economies, such as Japan, France, and the U.K., where yields have reached multi-decade highs.

It is clear for the investors: long-term rates are bound to stay relatively high, even if central banks consider policy easing. Managing the risk of interest rates and inflation should remain a top priority in portfolio construction.

Equities: Earnings Take the Lead

BlackRock’s outlook emphasizes that earnings, not valuations, will drive stock market performance going forward. In 2025, much of the U.S. market’s strength has come from companies tied to AI and digital transformation. These sectors continue to generate very high profits that support their valuations. Outside of the U.S., equity returns have leaned more on rising valuations compared to earnings growth, making them increasingly sensitive to economic slowdowns.

BlackRock’s regional positioning reflects this balance:

• U.S. equities remain a tactical overweight, with a focus on technology, communication services, and high-quality growth companies.

• Japan is now favored, supported by a reflationary environment, improving corporate governance, and shareholder-friendly reforms.

• Europe and emerging markets offer selective opportunities but face headwinds from trade tensions and uneven growth.

At Ballestas Group, we share the view that active management is essential in this phase of the cycle. As global dispersion widens, careful company and sector selection are likely to outperform broad market exposure.

Fixed Income: Quality and Discipline Matter

For bond investors, the landscape has shifted dramatically. With long-term yields elevated and government debt expanding, quality income opportunities are emerging - but not evenly across markets.

BlackRock takes a balanced stance on U.S. Treasuries, recognizing that short-term data could pull yields lower while fiscal challenges push them higher. Instead, they find the following investment opportunities more attractive:

• Developed market government bonds outside the U.S., where yields have adjusted closer to fair value.

• Agency mortgage-backed securities (MBS), which are currently offering higher income potential, compared to Treasuries, while having strong credit quality.

• Short-term investment-grade bonds, which compensate investors better for rate risk than long-dated corporate debt.

• Inflation-linked bonds, as a way to hedge against the potential for higher medium-term inflation.

The message for investors is to use select income in exchange for flexibility and quality in current times.

The Growing Role of Private Markets

The fastest growth of any sector mentioned in BlackRock's outlook is private markets. Companies are staying private for longer and many smaller ones are resorting to private credit instead of traditional pathways through bank loans or public issuance of bonds. Such trends open prospects for investors entering the niche of private credit, private equity, and infrastructure-all three sectors with the ability to blend attractive returns with diversification.

At Ballestas Group, we see this as part of a broader transformation: the traditional "60/40" portfolio is evolving. Future allocations likely will blend public and private exposures to offer more ways to manage risk and capture structural growth themes.

What This Means for Investors

Accordingly, the outlook suggests several key actions for investors to keep in mind:

• Stay invested - but stay selective. The environment still supports risk assets, but quality and focus have become more important than ever.

• Balance growth with income. Combine exposure to innovative sectors like AI with high-quality bonds and alternatives that generate stable returns.

• Look past public markets. Private credit and infrastructure may play a much bigger role in long-term diversification and income generation.

• Manage inflation and rate risk intentionally. High yield creates opportunity - but disciplined positioning is necessary.

Our View at Ballestas Group

The global investment landscape is evolving, not collapsing. We see a market that rewards precision, patience, and perspective. While we believe volatility will remain, disciplined investors focusing on earnings quality, structural growth, and intelligent risk management are well positioned for the next cycle.

For a deeper look at BlackRock’s full Q4 2025 Outlook and what it means for your portfolio, you can download the full report below or reach out to our team to discuss personalized strategies.

FULL REPORT HERE

This commentary represents the views of Ballestas Group and is provided for informational purposes only. It should not be interpreted as investment advice or a solicitation to buy or sell any security or strategy. All investing involves risk, including the possible loss of principal.