BlackRock shifts US equity stance to neutral, builds Treasury holdings as yield approaches 5.25%

BlackRock's latest adjustment lends support to the notion that climbing yields are vying with equities for capital, a trend that could put a lid on stock prices even when corporate earnings are solid. A great deal rests on oil: conflict in the Middle East and rising crude costs were behind the sharp repricing of Federal Reserve policy expectations, so any easing in the Iran situation would back BlackRock's argument that wagers on higher rates have gone too far, validating its short-dated Treasury bet. On the reverse side, a further oil spike that raises this week's CPI and PPI numbers could push yields past the buffer BlackRock reckons exists before Treasury returns go negative. Sustained appetite from large capital allocators at these yield levels might calm the long end after recent swings, and the reduced underweight on Japanese government bonds suggests yields above 3% there are drawing more attention.

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Earlier:

• JPMorgan: Q3 earnings should buoy equities as growth reaches beyond AI

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For the first time in six years, BlackRock is purchasing Treasuries, funding the move in part by taking profits from US stocks, while sticking to its AI thesis.

Key points from the firm's shift:

• The asset manager dropped its long-time overweight on US stocks to neutral.
• Its central AI views stay in place, and it continues to prefer firms linked to AI, listed infrastructure and emerging-market stocks.
• Shorter-term Treasuries were raised to overweight and long-term Treasuries to neutral, closing an underweight that had lasted most of six years.
• The market has baked in 160 basis points of Fed tightening since January, but BlackRock says the real yield rise of 110 basis points makes that pricing look excessive for now.
• It sees roughly 75 basis points of headroom for yields to climb over 12 months before Treasuries generate negative total returns.
• Its negative stance on Japanese government bonds was also scaled back.

The firm ended its long-standing overweight in American equities, going to neutral amid a rebalancing that has the world's top asset manager buying Treasuries now that higher yields have made them appealing.

The downgrade to US equities was labelled a temporary risk-control step, not a fundamental shift in outlook. BlackRock is also keeping an eye on rising public focus on AI regulation and the construction of AI infrastructure across US states. Its belief in the AI transformation is unchanged. It argues that elevated rates are driving a wedge between firms that can earn a return above their capital costs and those that cannot. It still favors AI-related firms and listed infrastructure, where strong demand and limited supply underpin returns. Its overweight in emerging-market stocks was maintained. The shift occurs against a backdrop where S&P 500 third-quarter earnings are forecast to be nearly 30% higher than a year ago, based on FactSet data BlackRock cited.

Profits realized from US stocks are partly paying for a large upgrade to Treasuries. BlackRock states the 10-year yield has climbed 110 basis points this year to about 5.25%, driven mostly by rising real interest rates, not by inflation expectations or the term premium. The increase in real rates is tied to fiercer competition for capital, pushing up the neutral rate, and to a sharp swing in Fed expectations stemming from Middle Eastern tensions and higher oil prices. Since January, the market has baked in 160 basis points of further Fed tightening over 12 months, which BlackRock judges excessive.

Shorter-term Treasuries were raised to overweight, an area where the firm sees the most scope for easing expectations to unwind; long-term Treasuries went to neutral, with higher yields providing better compensation for interest rate risk. BlackRock had kept an underweight on Treasuries for most of six years, having first adopted it in October 2020 when 10-year yields were close to 0.9%. At today's levels, the estimate is that yields could rise by 75 basis points more over 12 months before overall returns go negative.

In other adjustments, BlackRock trimmed its underweight on Japanese government bonds, a position held since July 2023 when 10-year yields were roughly 0.4% to 0.5%, compared with above 3% now. It also cut US agency mortgage-backed securities to neutral.

BlackRock says it is prepared to take on more risk once visibility improves. The US CPI and PPI releases this week, offering the first snapshots of September inflation, are set to influence Fed policy expectations and Treasury yields.

About BlackRock:

BlackRock, the world's biggest asset manager, oversaw a record $15.3 trillion for clients as of June 2026, a 22% increase from $12.5 trillion the year before. This sum exceeds the annual GDP of every nation except the US and China.

Inflows persist: net $192 billion arrived from clients in the second quarter, contributing to a record $321 billion in the first six months of 2026.

Its primary business lines:

• iShares: its ETF brand, which holds assets around $6.25 trillion and has roughly doubled assets in three years according to Larry Fink.
• Demand for its Aladdin platform was reflected in a 13% rise in technology services revenue, which hit $566 million in Q2.
• Private markets: a growing push beyond stocks and bonds, with assets at $329 billion.

Leadership: co-founder Larry Fink, who launched the firm in 1988 and has been at the helm ever since.

Why its moves are tracked: when a manager this size shifts its views, as it did by cutting US stocks to neutral and adding Treasuries, the change can steer flows across its model portfolios and is closely watched as a signal of institutional sentiment.