The theory of everything is purely reductionist and doesn't explain macroscopic objects or emergent behavior. The current understanding of gravity should be able to describe black holes and the challenges that come with it if it includes quantum mechanics.
The search for a unified theory that includes gravity and black holes continues, with the assumption that some physical ideas or mathematical tools are still missing for a proper understanding and formulation of the problem to find a solution that resembles the real world. Including black holes in the theory is crucial to make predictions about certain phenomena, but the inclusion of quantum mechanics leads to paradoxes that further complicate the search.
While a theory of everything attempts to explain the underlying fundamental principles of the universe, it falls short in understanding macroscopic objects and emergent behaviors that cannot simply be derived from the theory itself. As one moves to different levels of explanation, new ideas and ways of thinking are needed to understand the complexities of the world around us.