NEW YORK — BlackRock's Investment Institute published its capital market assumptions for professional investors on Aug. 7, 2026, projecting U.S. corporate earnings growth of 11.6 percent annually over the next five years. The firm said that pace is achievable in only about 15 percent of comparable historical five-year stretches — and it is building portfolios around that projection rather than treating it as a tail outcome.
The earnings forecast sits alongside a strategic underweight to developed market government bonds. That combination — long equities, short duration in sovereign debt — is the core of BlackRock's current positioning. Rising long-term yields and rising corporate earnings are not contradictory in its framework; the firm argues both are driven by the same structural forces.
The structural argument centers on what BlackRock calls a global bond reset. Since 2021, three pressures have pushed long-term government yields higher: rising public borrowing, greater inflation uncertainty and more volatile bond markets. Governments, AI hyperscalers and corporations across the broader economy are competing for the same pool of capital, keeping upward pressure on the long end of the yield curve. BlackRock's view is that this is not a cyclical rate spike that normalizes over a typical business cycle — it is a structural repricing of the cost of capital.
Five years after the last economic downturn, consensus earnings forecasts for the S&P 500 for 2026 are still being revised higher, not lower — a data point BlackRock uses as evidence that structural forces are overriding typical late-cycle compression. S&P 500 earnings estimate paths for the 2021–2027 period, sourced from LSEG Datastream, show calendar-year estimates moving in a direction inconsistent with a late-cycle playbook.
The 11.6 percent earnings growth projection is explicitly conditional. BlackRock ties it to AI adoption raising productivity and expanding profit margins. Without that productivity channel, the forecast does not hold. The firm said the number represents a plausible outcome within a scenario framework built around multiple macro paths — not a base case that assumes smooth execution. That framework is what BlackRock describes as its capital market assumptions, a document produced for professional investors only.
On the credit side, BlackRock said it has gone underweight high-yield credit strategically, citing tight spreads — the gap between yields on corporate junk bonds and equivalent-maturity Treasuries — as the reason. Spread compression at this level means investors are receiving less incremental yield for taking on corporate default risk than the firm considers adequate compensation. The firm prefers durable income in selected private credit over adding duration risk in public fixed-income markets.
Duration risk — the sensitivity of a bond's price to changes in interest rates, with longer-maturity bonds losing more value per unit of yield increase — is the exposure BlackRock is cutting. A strategic underweight to developed market government bonds is an active call that long-term yields have further to rise. If the firm is right, holders of 10- and 30-year sovereign paper face continued mark-to-market losses. BlackRock said it thinks long-term yields have more room to run.
That view sits in direct tension with the near-term data flow. Treasury yields fell in the most recent week as softer jobs data reduced immediate pressure for a rate increase from the Federal Reserve. BlackRock acknowledged the softness but drew a distinction between short-term rate path uncertainty and the structural direction of the long end. A steeper yield curve — where long-term rates stay elevated even as near-term rate expectations ease — is consistent with both observations. The firm sees the July inflation data, due shortly, as the next test of whether softer hiring and wages are feeding through to prices and expects some rebound from June's softer reading.
The near-term inflation view matters for yield curve shape. If July CPI prints firm, the short end of the Treasury curve gets repriced hawkishly while the long end holds its structural premium. If July comes in soft, the front end rallies but BlackRock's structural thesis on the long end remains intact — the firm's underweight to government bonds does not depend on the Fed holding rates at any particular level. It depends on the bond market demanding more term premium, the extra yield investors require to hold long-term debt rather than rolling short-term pa. BlackRock's preference for equities over developed market government bonds rests on the view that strong earnings growth is durable. The firm said this is not a typical business cycle call. Applying a standard late-cycle rotation — out of equities into defensive bonds as yields rise — would, in its framework, be drawing the wrong lesson from a market environment that does not follow the standard script. The AI productivity thesis is load-bearing for that view. If capital spending by hyperscalers does not translate into economy-wide productivity gains, the 11.6 percent earnings growth number does not materialize, and the case for equities over duration weakens materially.
