Q4 Equity Outlook: 4 questions investors may be asking

The S&P 500 Index is on track for a fourth year of double-digit positive returns, an achievement seen only three times in the last 100 years.¹ Fourth quarters are typically the strongest quarter of the year for U.S. stocks, and historical patterns suggest strength in the first three quarters more often portends a positive final quarter than a giveback of gains.²

Of course, every year has a unique set of variables at play that could influence market outcomes so we review four key questions investors might be contemplating in Q4 2026.

We are already seeing it. BlackRock’s Global Technology team finds that AI compute economics have improved meaningfully for hyperscalers and AI cloud providers, with infrastructure investments now estimated to achieve payback in less than three years versus up to four years just months ago.³

Growth in cloud revenues among the mega-cap hyperscalers is accelerating, with the growth rate in Q2 double that of the year-ago period,⁴ an indication of stepped-up business from AI and further justifying the continued capital spending.

That spend, estimated at over $10 trillion by 2030,⁵ is needed to satisfy a large and growing demand for AI tokens and scarce compute ― the physical processing power needed to handle them. This demand is evident across the economy as companies increasingly apply AI to target productivity gains, competitive advantages and enhanced revenues.

The number of large-cap U.S. companies citing AI-related financial uplift increased by 77% over the past year, a trend seen in varying degrees across sectors.⁶ This again suggests the spend is bearing fruit and fueling the next leg of the AI investment cycle among AI adopters.

Learn more about why we don’t think AI is in a bubble.

The earnings outlook remains very positive in the U.S. and beyond. Consensus analyst estimates suggest 2026 will be the third consecutive year of double-digit earnings growth for the S&P 500, a measure not seen in 20 years ― and early reads indicate 2027 may take this stretch to four years.⁷

Applying an even longer lens shows that five-year forward earnings growth estimates are higher today than at any point in the past 40 years, at 18% versus a historical average of 12%.⁸

The outlook is constructive globally as well, with Europe showing its strongest earnings growth in three years and emerging markets boasting a 2026 earnings growth forecast of nearly 50%, driven largely by AI beneficiaries in South Korea and Taiwan.⁹

In the U.S., we see a cyclical upswing separate from AI. This is showing up in financials, industrials and non-AI analog semiconductors, providing evidence of a broadening market.

Within industrials, the opportunities directly linked to the AI data center buildout are well acknowledged by the market. Yet we also see brightening earnings prospects in traditional cyclical industries such as logistics, airlines and packaging. At the same time, analog semiconductors are benefiting from an industrial recovery and improving inventory cycle.

In financials, U.S. money center and investment banks are supported by strong investment banking, trading and capital markets activity in addition to subdued loan delinquencies and an uptick in loan growth from depressed levels.

Meanwhile, consumer finance companies have an outlook for earnings acceleration driven by credit normalization, lower funding costs and a resilient consumer.

Europe and Japan pique our interest, delivering strong performance even without the massive AI impulse of the U.S. market.

Japan stands out with a year-to-date return of 21% compared to the U.S. and Europe both in the area of 13%.¹⁰

Japan is in the midst of structural reform with concerted support from the government and corporate sectors, yet analysis from our Japan team finds that a good proportion of stocks still trade below book value. We see unique opportunity and particular strength in specialty materials that feed the AI buildout.

Meanwhile, European earnings are on an upswing, led by the energy sector. Relative to the U.S., we find that Europe has a greater share of companies that stand to benefit from the AI-driven focus on energy and infrastructure spending. And a large share of European revenues come from outside the continent, potentially making for a diversified set of equity drivers.

We see Europe offering differentiated AI exposure that complements the U.S. “heavyweights.” European equities also represent relative value, trading at a 25% discount to U.S. stocks.¹¹

See our Fall Investment Directions for more on diversifying around AI portfolio concentration.

We believe strong earnings and an expanding opportunity set provide a constructive set up for stocks, but high expectations reinforce the importance of discipline, diversification and active stock selection.

Despite our overall constructive outlook, we are cognizant of the potential risks. These include geopolitical uncertainties, Fed policy and the effects of higher rates on long-duration assets, and the sustainability of earnings breadth beyond AI.

In a phrase, we are risk-on but risk-aware and believe an active and fundamentally steeped approach to stock selection can help investors endure bouts of volatility in the fourth quarter and beyond.

BlackRock’s Fundamental Equities and Systematic Active Equities teams explore these themes in greater detail in our latest Equity Market Outlook, highlighting the opportunities and risks we see across regions and sectors.