US Stocks Hit Record Highs as Inflation Eases Rate-Cut Concerns

NEW YORK — US stocks hit record highs on Wall Street as cool inflation data boosted rate cut expectations, lifting investor sentiment and fueling optimism for markets ahead.

BlackRock has thus significantly changed its stance on long-term Treasury holdings.

Just yesterday the organization in its global investment outlook pointed up how the big-tech companies and major investors have put AI in the forefront as the most convincing way of getting growth. The move has created a lot of buzz about the U.S. debt possibly increasing by hundreds of billions of dollars in the next years to cover the expenses of research, development, and the use of AI.

The department is not concerned about the borrowings actually weakening the balance sheets of corporations in the short term. However, it points to broader systemic risks. As the U.S. federal debt has climbed over $38 trillion, a rise in borrowings by both public and private sectors at the same time, may lead to higher financing costs and aggravate the financial system.

The report states that “higher borrowings both in public and private sectors will most likely keep the upward pressure on interest rates,” thus increasing the worries that rising yields will make it more difficult to service long-term debts.

The warning from this think tank is that the most dangerous scenario is a sudden and sharp rise in bond yields that could be brought on by fiscal instability, inflation worries, or political disputes over debt management. BlackRock’s decision to downgrade long-term Treasuries from “neutral” to “underweight” is an indication of the company’s lessened confidence in these assets over the next six to 12 months reflecting these risks.

On the other hand, AI-led investments might eventually bring in government revenues thus easing the debt situation. However, BlackRock warned that such pros are far off in the future. “More debt in the system means it becomes more vulnerable to sudden events such as bond-yield spikes resulting from fiscal concerns or policy disagreements,” the report highlighted.

The forecast points to the difficulties the policymakers have in performing the triple tasks of controlling inflation, nurturing economic growth, and securing debt stability during a period of rapid change in technology.

BlackRock, in spite of its negative view on bonds, is bullish on AI turning into a catalyst for the U.S. stock market in 2024. The company holds that AI-driven productivity improvements could be a win-win situation for corporate revenues and the economy, however, the positive impact will be unevenly distributed across sectors and companies.

“Highly probable are the new revenue streams solely based on AI use,” the institute said. “The way those revenues are shared will change, and we don't know how at this point. The play on the winners will be an active investment narrative.”

Worldwide, the company has lessened its commitment to Japanese government bonds anticipating that the Bank of Japan would raise interest rates and increase bond issuance. Besides, the company has ramped up its investment in the emerging-market hard-currency debt citing limited supply and solid government balance sheets as the main reasons.

Some of the other changes that the company made to its international portfolio include additional underweight positions in Japan and more significant investments in the emerging markets.