Artificial intelligence helps explain why bond yields and stock markets can remain high at the same time. Investment demand is pushing up the , while the spending itself is feeding a powerful rise in corporate earnings. But that coexistence cannot be taken for granted indefinitely, Bruno Rovelli, Chief Investment Strategist at BlackRock, said at the Business Leader Summit in Milan.
Rovelli sees both cyclical and structural forces behind elevated bond yields. High oil prices, driven by tensions in the Middle East, are adding to inflationary pressures that monetary policy must address. Beneath that sits a broader contest for funding: large public budget deficits are coinciding with strong investment demand, particularly from the . That competition for capital can push interest rates higher almost independently of inflation or oil prices.
Equities have withstood those pressures largely because earnings growth has accelerated sharply, especially over the past 12–18 months. Rovelli described that strength as unusual: profits typically grow so quickly when economies emerge from recession, rather than five years after the last one. Much of the increase is concentrated in the AI ecosystem, where investment spending is generating revenues and profits for the companies supplying it.
For now, this makes the combination of strong equities and high bond yields rational. It does not mean stocks can permanently detach themselves from the bond market. A broader distribution of earnings growth would be reassuring, Rovelli argued, because it would show that AI is creating value beyond technology companies investing in one another.
His longer-term expectations remain ambitious. BlackRock believes AI is probably the greatest technological revolution in history, with the potential to accelerate growth through productivity. Its promise is a non-linear expansion of the cognitive capabilities available to humanity. Rovelli expects that to help productivity grow faster over the next five to ten years than it has over the past ten or twenty. The benefits need not be confined to the United States: applying AI could also help Europe, even if it is not necessarily a producer of the underlying technology.
That opportunity is unfolding in a fragmented geopolitical environment. The United States and China have to talk, but their AI ecosystems continue to develop largely in parallel. Rovelli described a shift from a broadly unipolar world to one that is, if not multipolar, at least bipolar. Competition between the two powers makes it harder for their technology ecosystems to overlap or integrate.
The result, in his view, is probably more investment than would have occurred in a geopolitically integrated world, but without the two systems coming together. AI and are operating simultaneously, reinforcing spending while keeping the ecosystems apart.
Asked about the outlook for the end of 2026 and for 2027, Rovelli maintained his preference for equities over bonds. He was less certain about another longstanding BlackRock preference: credit over government bonds. Government yields have undergone substantial repricing, while remain compressed. At the same time, much of the current competition for capital is being driven by private-sector demand for credit.
The most important question to monitor is whether the enormous investment cycle can translate into profits—or, more precisely, cash generation. Investment spending naturally produces earnings for its recipients. As Rovelli put it: “Your investment is my profit.” Later, however, reduce earnings over time.
That is why the next phase must involve more than a boom sustained by technology spending on technology. Companies using AI need to demonstrate that they can grow profits faster than companies that do not. Evidence of that remains fairly limited, Rovelli cautioned. Over the next 12–24 months, the crucial test will be whether earnings growth spreads beyond the technology sector and begins to reflect the gains from applying AI across the wider economy.