A top BlackRock strategist shares the 4 biggest market trends she's watching, and how to invest in each

• Gargi Pal Chaudhuri from BlackRock's iShares shared her top market trends to watch.
• They include the AI trade keeping momentum and the broken correlation between stocks and bonds.
• Meanwhile, valuations look more compelling after recent bouts of volatility.

In a whiplash-inducing market, it can be helpful to hear to what an experienced veteran has to say about where to look for opportunities.

Gargi Pal Chaudhuri is one such market vet. She's the head of investment strategy at BlackRock's iShares, which oversees $4.3 trillion in assets in its Americas division.

Pal Chaudhuri spoke with Business Insider this week about her Spring Investment Directions update, published on Wednesday. It highlights the top market trends she's watching, and how to invest around them.

Let's dive in.

Trend 1: The AI trade will continue to have momentum

The AI trade has hit some bumps in the road lately. Last fall, it was concerns around AI infrastructure capex levels. Earlier this year, there were fears that much of the software sector could suddenly be put out of business.

But Pal Chaudhuri said that the AI theme remains one of her highest-conviction bullish calls.

"That's one of the themes that have been with us for over 3 years now, and we think that that's going to continue to drive earnings growth," she said.

How to invest: Rely on active fund management to sort through winners and losers. She pointed to the iShares AI Innovation and Tech Active ETF (BAI), which is up 103% over the last 12 months. Examples of other AI funds include the Amplify AI Powered Equity ETF (AIEQ) and the KraneShares Artificial Intelligence & Technology ETF (AGIX).

Trend 2: Stock valuations are cheap

After the recent sell-off, Pal Chaudhuri said valuations are attractive, as earnings estimates have risen while share prices have fallen.

How to invest: Be in US large-cap stocks. Pal Chaudhuri said large caps are less sensitive to interest rates and macro risks than smaller stocks. The S&P 500 is a classic play on US large-caps, but Pal Chaudhuri said to go even more concentrated, suggesting an index fund tracking just 100 of the largest companies.

Trend 3: The correlation between bonds and stocks remains broken

Historically, investors have relied on bonds as a ballast for portfolios. When stocks have sold off, bond have usually rallied as investors sought safety.

Recently, however, the two assets have tended to move together. While stocks have sold off, so have bonds, as investors have pushed up bond yields demanding higher compensation.

"Traditional stock-bond diversification has been unreliable in recent years and weakened meaningfully following the onset of the Middle East conflict in late February," Pal Chaudhuri wrote in the report. "The 20-day rolling stock-bond correlation rose to 0.72 in late March, its highest level since May 2024."

How to invest: Look to shorter-duration Treasury inflation-protected securities (TIPS), which she said have outperformed regular bonds over the last half-decade or so.

"From the start of the impact of the pandemic from the end of 2020 till now, tips have outperformed nominal bonds by about 12%," Pal Chaudhuri said.

Second, she pointed to liquid alternative investment funds. They used managed futures strategies to generate returns that aren't tied to stock or bond returns.

Trend 4: Energy security

Pal Chaudhuri said there are a couple of structural trends that will continue to make energy scarce going forward.

"Given the amount of spending that was taking place because of the power needs for AI that was already with us, and now with this recent shock to oil prices, we think that energy security is going to probably be with us for some time," Pal Chaudhuri said.

How to invest: Picks and shovels energy companies building out and maintaining infrastructure, like pipelines.