BlackRock believes that relying solely on US CPI and other single data points is not enough to fully judge market trends. The firm expects large tech companies to continue to be key drivers of US stock earnings growth. Therefore, they will continue to overweight US stocks and opportunities related to the artificial intelligence theme. BlackRock points out that, dragged down by tech stocks, the US stock market has retraced from historical highs. The market hopes that large tech companies will continue to surpass high earnings expectations under the influence of the artificial intelligence theme. However, the unexpected decline in US June CPI has reignited market expectations for the Fed to cut rates soon, leading to a 3.7% increase in small-cap stocks that are heavily indebted and sensitive to interest rate changes. BlackRock expects this rebound to not last long, as the Fed may keep rates high for a longer period of time as long as inflation pressures persist. Currently, what is driving market changes is structural shifts such as artificial intelligence, which are driving a transformation wave. BlackRock is closely monitoring the impact of these shifts on corporate earnings for the second quarter. As shown in the chart below, it is widely predicted that earnings for tech stocks in the S&P 500 index will far exceed those of other industries within the index. Analysts predict that tech stocks in the S&P 500 index are expected to achieve an 18% year-on-year earnings growth in the second quarter, while earnings growth for other index constituents is only 2%. While these forecasts set high standards for continued profitability for tech companies, BlackRock believes that these companies may be able to meet these targets. However, there may be some price volatility for these companies before Nvidia discloses its highly anticipated financial performance at the end of August. For example, in the Northern Hemisphere markets, the seasonally weak summer trading activity may exacerbate market volatility, leading to sudden downturns in the market. Meanwhile, some investors believe that the high capital expenditure in the field of artificial intelligence could impact large tech companies' ability to achieve expected earnings growth, leading to possible shocks in tech stocks. In addition, potential additional restrictions on chip trade by the US may also lead to a decline in the stock prices of major chip manufacturers. Any changes in trade or regulatory policies post the November US election that could restrict the development of artificial intelligence may also have an impact on the tech industry. Despite increasing pressure on US stocks in recent weeks, Biden's announcement last weekend to withdraw from the presidential race may bring more uncertainty to the stock market. BlackRock will closely monitor these risks, while continuing to overweight investment opportunities related to the artificial intelligence theme and viewing sudden market downturns as buying opportunities. As analysts expect improvements in profitability in other industries, the earnings lead for the tech industry may narrow later this year. The rapid development of artificial intelligence is driving a transformation similar to past technological revolutions, while also promoting the development of other industries, including industrial, materials, energy, and healthcare industries. However, BlackRock believes that the rise in US small-cap stocks is not due to fundamental improvements in their profitability, but rather due to their sensitivity to high interest rates and not directly benefiting from structural transformation. For example, due to high interest rates, US small-cap stocks have seen profit declines for five consecutive quarters. Regionally, as rate cuts help stimulate economic growth and corporate earnings are improving, BlackRock is cautious about the European market. In terms of industries, while they were optimistic about the banking sector earlier this year considering the solid balance sheets of banks, the relative valuation of the banking sector seems somewhat high at present. The firm is bullish on construction, utilities, and semiconductor companies that benefit from rate cuts and structural trends. Additionally, with relatively stable political conditions post the UK general election, the potential economic recovery may further boost valuations, leading the firm to overweight UK stocks.