Market briefs
Breaking insights on the economy, market volatility, policy changes and geopolitical events.
March 11, 2025
The rebalancing act behind the latest volatility
So, what just happened? Equity markets dropped on Monday amid growing concern over the economy. Technology stocks led the decline, with the tech-heavy Nasdaq Composite Index falling by nearly 4%, and the S&P 500 down 2.7%.Footnote 1 Many news reports attributed the volatility to concerns around tariffs and recent comments from the administration about a possible recession.Footnote 2
While some Wall Street observers have raised the probability of a recession, we see this, first and foremost, as a major rebalancing from growth areas towards more defensive sectors. Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank.Our take on what this means
"While some Wall Street observers have raised the probability of a recession to nearly one in two, we don't see it that way," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "We see this, first and foremost, as a major rebalancing as market sentiment shifts away from growth areas, such as technology, which have dominated in recent years, towards more defensive sectors like healthcare, utilities and consumer staples." He adds, "We believe this market drawdown, accelerated by profit-taking, is driven by economic growth worries, which in our view are exaggerated."
How should investors respond?
It's more common than not to experience one or more corrections of 10% or more in any given year. "While volatility is always unsettling, investors should avoid sudden decisions to sell assets," Hyzy says. "We view this weakness as a potential buying opportunity and a time for investors to consider rebalancing their portfolios," he explains. "Now may be a time to explore diversifying into Europe and other developed markets, which are finally becoming more attractive after years of underperforming relative to the U.S."
Footnote 1 CNBC, "Dow tumbles nearly 900 points, Nasdaq suffers worst day since 2022 as recession fears erupt: Live updates," March 10, 2025.
Footnote 2 The Wall Street Journal, "Stock Market Today: Nasdaq falls 4% after Trump doesn't rule out recession," March 10, 2025.
March 7, 2025
Tit-for-tat tariffs are here. What should investors do?
The other shoe has fallen. After a 30-day delay, the U.S. imposed threatened tariffs of 25% on imports from Canada and Mexico and increased tariffs on China early this week. America's three largest trading partners responded by announcing plans to impose retaliatory tariffs, causing market volatility to rise sharply,Footnote 1 despite reports that a compromise might be reached, limiting the number of sectors subject to tariffs on goods from Mexico and Canada. Later in the week, the administration gave Mexico and Canada temporary reprieves on some goods, announcing that imports trading under the rules of the U.S.-Mexico-Canada Agreement would be exempt through April 2.Footnote 2
Amid all the uncertainty, "investors are assessing the impact of these new tariffs on U.S. growth, business confidence and corporate earnings," says Joe Quinlan, head of Market Strategy in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. In a recent
CIO Capital Market Outlook, Quinlan notes that the U.S. economy, which depends much less on trade than on the extraordinary power of consumer consumption, could be relatively well-positioned to withstand any negative impacts. Below, he offers insights on what investors could expect next and how they might respond.
Expect more turbulence ahead. A trade war could lead to global supply-chain disruptions, lower corporate earnings, higher prices for goods and services, higher-for-longer inflation and a pause in the global easing of interest rates, Quinlan says.
Focus on high-quality companies. In that environment, investors should consider companies with strong balance sheets, Quinlan adds. "Look to strike a balance between growth stocks, largely in technology, and value sectors such as healthcare, industrials and financials," he suggests. "Dividend-paying stocks also look more attractive now, as do defense and cyber security leaders."
Combine caution with calm. Amid today's considerable uncertainty, Quinlan advises investors to stay focused on their goals and diversified across and within asset classes. "Consider periodic volatility as an opportunity to add to your portfolio and rebalance as necessary," he says. "If you work with an advisor, speak with them about the best way forward. In this era of shifting dynamics, nimbleness and rebalancing remain prerequisites."
TEST YOUR TRADE KNOWLEDGE
Tap + to select correct answer and learn more
Q: True or false: U.S. exports of goods and services account for just 11% of gross domestic product?
A: True
That's right. Though U.S. exports and imports are among the largest in the world, they make up a very small proportion of the nation's GDP.Footnote 3 The U.S. consumer, by contrast, accounts for nearly 70% of U.S. GDP.Footnote 4
A: False
Actually, the correct answer is "True." Though U.S. exports and imports are among the largest in the world, they make up a surprisingly small proportion of the nation's GDP.Footnote 3 The U.S. consumer, by contrast, accounts for nearly 70% of U.S. GDP.Footnote 4
Footnote 1 The Wall Street Journal, "Trump's Tariffs on Canada and Mexico take effect, with added duties on China," March 4, 2025.
Footnote 2 The New York Times, "Trump Administration Live Updates: In reversal, most new tariffs on Mexico and Canada suspended," March 6, 2025.
Footnote 3 Statista, 2025.
Footnote 4 CEIC Data, "United States Private Consumption: % of GDP," December 2024.
February 18, 2025
Tariffs' impact on the markets. It's complicated
Beware of simple answers. "While political disputes often center on bilateral trade imbalances, today's global economy is complex, with many moving parts," says Joe Quinlan, head of Market Strategy in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. "You need to consider how trade has evolved, and which sectors may be at risk."
With potential tariffs likely on the table for the foreseeable future, the February 10
CIO Capital Market Outlook (PDF) unpacks some of these complexities and offers insights on what they might mean for the economy, the markets and your investments.
Separating the news from the noise: 3 points to keep in mind
First, the U.S. economy is somewhat insulated from potential impacts: "Though it's one the world's largest trading nations, the U.S. is less trade-dependent than many economies in Europe, Asia and emerging markets," Quinlan says. Exports comprise just 11% of U.S. gross domestic product (GDP), compared with more than 50% of European Union GDP.Footnote 1 "Still, sustained, far-reaching tariffs could drag corporate earnings and U.S. economic growth and spur inflation," he cautions.
Second, individual sectors may be at risk, and they bear watching: Trade today is less about imports versus exports than intricate cross-border investments and partnerships. "Tariffs and counter-tariffs could throw sand in the gears of U.S. multinationals," he says. "Autos, pharmaceuticals, oil and gas and semiconductors may be at risk, along with retail and the food and beverage sector."
Third, small businesses are not immune: "While investors may assume trade disputes affect only the largest companies, smaller and mid-sized businesses have reaped the rewards of a world trading system that is more open than closed," Quinlan says. "If anything, sustained tariffs could be harder on them than on large-cap companies."
The bottom line for investors: Despite the flurry of headlines, the tariff picture remains uncertain and evolving and the U.S. economy is resilient, Quinlan says. Investors should keep a close watch on specific sectors of the economy but avoid making sudden decisions. "Stay focused on your goals, speak with your advisor if you work with one, and use temporary volatility as a way to strategically add to your portfolio," he suggests.
One final note: Inflation ticked up 0.5%, slightly more than expected, in January, according to the Labor
Department.Footnote 2 For insights on the potential impact of tariffs on inflation moving forward, read "Where We Stand: CIO Tariff Scorecard" in the February 10 issue of
Capital Market Outlook (PDF).
Footnote 1 United Nations Trade and Development. Data refers to 2023, as of January 2025.
Footnote 2 The Wall Street Journal, "Inflation heated up in January, freezing the Fed," February 12, 2025.
February 6, 2025
Competition heats up in Artificial Intelligence
There's a new AI kid on the block — China-based startup DeepSeek — and it's causing some angst among investors and U.S.-based companies in the AI space. Technology stocks tumbled on January 27, shortly after DeepSeek introduced its latest large-language model, a powerful chatbot reportedly consuming less power and developed at lower cost than existing models.
Video: Market Decode: The new AI kid on the block
Press enter to play 'Market Decode: The new AI kid on the block' video
[Music in background]
[Animated glitches containing various letters flip to spell out the following financial terms]
On-screen copy:
Bear Market
Business Cycle
Risks
Bull Market
Fixed Income
Inflation
Equities
Diversification
Interest Rates
Opportunities
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Market Catalysts
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On-screen copy:
Market Decode
Disclaimer:
Please read important information at the end of this program. Recorded on 1/30/25.
[Chris Hyzy speaking throughout]
Some are calling it the DeepSeek "Frenzy." On Monday, January 27th, an entire chain of industries tied to Artificial Intelligence came under severe pressure by China-based DeepSeek's announcement of a lower cost, more efficient and less power-hungry AI tool.
The news rattled investors, leading to a sharp 3% decline in the tech-heavy NASDAQ, driven by a double-digit decline in one of the largest semiconductor companies in the world by market capitalization.
Lower third:
Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
I'm Chris Hyzy, with thoughts on what this means — and why we believe the fears may be overblown and the news, in the long run, contains some positives.
So, what's behind the "frenzy"?
DeepSeek's energy-efficient AI tool, which was reportedly developed at far lower cost than existing models, sparked fear and concern by investors on its potential impact on the following:
- Capital investment in Artificial Intelligence
- Future energy demand
- and whether U.S. AI dominance would be dented or even gone.
On-screen copy:
- Capital investment in AI
- Future energy demand
- Whether U.S. AI dominance would be affected
While those concerns are understandable, we see the DeepSeek news as part of an evolving AI story that will contain many surprises, disruptions, and benefits.
Here's our view:
First, lower development costs, greater efficiencies, and less power usage point to higher productivity gains. That would be good for growth in the economy and positive for market growth, both nominal and real.
On-screen copy:
- AI evolution could lower development costs and increase productivity
- Easier AI adoption could lead to greater profitability for companies
- Competition could foster accelerated AI innovation
Second, these benefits could lead to wider and easier adoption across the corporate landscape, leading to potentially wider margins, and greater profitability for companies.
And third, we expect this new competition in the AI space to foster innovation at an accelerated rate.
Lastly, we don't believe that future power demand is likely to wane on the back of DeepSeek's news. Why? Because we expect even wider adoption. With wider adoption, the demand curve for power needs should go up across the globe, not down.
Lower third:
Wider adoption could increase the need for power across the globe.
Let's turn to America's dominance in the AI space. Is it now gone?
We don't believe so. We expect this competition to kickstart further innovation.
U.S. capital investment still leads the world by many multiples, and the equipment, design, engineering, and power access needed to lead in the future is overwhelmingly U.S.-born.
What about the overall impact on markets?
On-screen copy:
New supports our:
Productivity theme including increased U.S.-led economic and profits growth
Infrastructure and power theme
View that AI software segment could benefit as the cost of integrating AI drops
If anything, this latest news supports our productivity theme, including above average, U.S.-led economic growth and double-digit profits growth.
And it supports our infrastructure and power generation theme, as well as our view that the AI software segment should benefit as the cost of integrating generative AI drops.
DeepSeek does call into question the premium valuations of some mega technology stocks and whether their future growth rates can be sustained.
But we believe the generative AI movement is just beginning. The robotics revolution is coming quickly, and the most advanced companies should remain leaders — even in the face of competition.
Lower third:
The generative AI movement is just the beginning of the tech evolution.
And as AI adoption grows, we expect the "best of the rest" — those 493 S&P 500 firms not among the "Magnificent 7" companies — to see a boost in multiples as their profitability rises.
For more timely insights on the economy and markets, be sure to read our weekly Capital Market Outlook.
Thanks for watching, and that's the Market Decode.
On-screen disclaimers:
Important Disclosures
The opinions expressed are as of January 30, 2025 and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
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This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
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[End of transcript]
Market concerns may be overblown, believes Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "This new competitor is part of an evolving tech evolution holding significant promise for the economy and long-term investors." In fact, he notes, "Competition should only help to accelerate innovation." Taking up the challenge, a number of companies involved in the AI space made a point of confirming their capital spending commitments on earnings calls after the DeepSeek announcement last week.
Watch the video above for more of Hyzy's thoughts on risks and opportunities in the AI space and why he believes the U.S. is well-positioned to remain the global leader in AI innovation. You'll find a deeper dive into the disruption caused by DeepSeek and what it might mean for your investments in this week's
Capital Market Outlook (PDF).
February 3, 2025
What's behind the Fed's rate-cutting pause?
After three headline-grabbing interest rate cuts in 2024, the Federal Reserve (the Fed) concluded its January meeting on Wednesday, January 29, by announcing that it would hold its benchmark interest rate steady at 4.25% to 4.5%,Footnote 1 offering little indication of when it might cut again. The pause was widely expected, and markets largely took it in stride. "The lack of drama was intentional. We believe the Fed wanted this meeting to be a ‘yawn,'" says Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank.
"Market expectations have shifted significantly in the past couple of months from the original four cuts in 2025 to one — or none," Hyzy adds. Wednesday's widely anticipated pause reinforces that "any additional cuts will be driven by hard data as the Fed balances its twin mandates of controlling stubborn inflation and maintaining low unemployment," he says. A recent rise in 10-year Treasury yields, for example, reflected a fundamentally strong economy and ongoing inflation concerns, both likely factors in slowing the pace of cuts.
For more on interest rates, bond yields and inflation, watch "
What's up with 10-year Treasury yields?" In this conversation, Hyzy talks with Matthew Diczok, head of Fixed Income Strategy for the Chief Investment Office, Merrill and Bank of America Private Bank, about moves investors can consider in the current rate environment. You can catch Hyzy's market insights weekly on the
CIO's Market Update audiocast.
Footnote 1 Forbes, "Federal Reserve pauses interest rate cuts - first meeting without a cut since July," January 29, 2025.
January 17, 2025
Are interest rate cuts off the table this year?
Investors expecting a pair of interest rate cuts by the Federal Reserve (the Fed) in 2025 are now adjusting to the prospect of a single cut — or none. A surprisingly strong labor report released January 10 showed the economy adding 256,000 jobs.Footnote 1 While good news for workers and the economy, the report intensifies ongoing concerns over sticky inflation.
"With inflation likely averaging around 3%, rather than the 2% target, the Fed has shifted from a rate-cutting approach to a wait-and-see, watching from the sidelines approach," says Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank. "Any future cuts will be driven by data rather than by market hopes and expectations." Based on current data, BofA Global Research now believes the Fed could put cuts on hold for 2025, Hyzy notes.
Here's our take on what this means
The delays are a major disappointment for investors who originally expected up to four additional cuts in 2025.Footnote 2 Lower rates reduce the cost of borrowing for businesses and consumers — a boon for rate-sensitive industries like housing, automobiles and small businesses. Yet after a years-long battle with inflation, the Fed is wary of cuts that could prompt a new spike in prices. They'll be closely monitoring economic data such as inflation, housing prices and unemployment, as well as financial markets. Some reason for cautious optimism: Core inflation and wholesale prices both rose by a lower-than-expected 0.2% in December from the previous month.Footnote 3
The outlook for investors
Rate uncertainties have contributed to recent stock market weakness, Hyzy notes. "After historic gains in 2023 and 2024, the equity 'fizzle' that started in December could extend into February, with periodic volatility." At the same time, "investors should avoid reading too much into the timing of individual cuts," Hyzy believes. "As the year progresses, we expect markets to refocus on the fundamental strengths of the U.S. economy, such as consumer spending, innovation and, especially, corporate earnings," he adds. "We still expect double-digit earnings growth for 2025 into 2026." Investors should look for potential buying opportunities amid early-year volatility and emphasize diversification across and within asset classes.
Footnote 1 CNN Business, "Job growth skyrocketed in December, boosting one of the strongest labor markets in US history," Jan. 10, 2025.
Footnote 2 Yahoo Finance, "Fed cuts rates by quarter point, scales back cuts for 2025," Dec. 19, 2024.
Footnote 3 CNBC, "10-year Treasury yield pulls back after core inflation is light in December," Jan. 15, 2025; CNBC, "Inflation watch: Wholesale prices rose 0.2% in December, less than expected." Jan. 14, 2025.
January 15, 2025
Could the bull stumble? 5 potential risks to watch
Strong corporate earnings, disruptive innovations and resilient consumers: It all adds up to a favorable environment for U.S. equities and investors in 2025 and beyond. So, what could go wrong?
"Markets are never linear," says Joe Quinlan, head of Market Strategy in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. "Even when things look bullish, it's important to consider risks that could cause the bull to stumble." Below are five possible scenarios to keep an eye on.
Put these possible scenarios on your watch list
1. Higher-than-expected inflation delays and derails rate cuts, rattling the market near-term. Inflationary expectations have shifted higher in early 2025, triggering a rethink and reset about U.S. monetary policy. The market is now pricing in one rate cut this year,Footnote 1 while BofA Global Research economists expect the Fed to pause altogether in 2025.
2. Gridlock thwarts policies. Many expect single-party control in Washington to bring market-friendly tax and regulation changes in 2025. Still, enacting legislation is complex, especially with a slim House majority, and the shape and timing remain fluid.
3. AI payoff takes a while. Amid massive capital investment in artificial intelligence (AI) infrastructure, just 6% of U.S. firms currently use AI to boost productivity and produce goods and services.Footnote 2 While the transformative benefits are real, an open question is how quickly AI will drive substantial economic growth.
4. Relations with China worsen. With the U.S. and China already at odds over trade, technology and Taiwan, tariffs and retaliations could deteriorate a relationship still vital to both economies.
5. Deficits unnerve markets. A dynamic economy and global appetite for U.S. Treasurys have so far enabled the federal government to manage its finances despite surging budget deficits. Without budget reforms, though, growing deficit concerns could disrupt markets.
Investor Rx: Take a balanced approach to risk
"Be aware of risks but don't be constrained by them," Quinlan advises. "Investors should expect 'chop and churn' and stay invested as these forces play out. Given the underlying positives, market pullbacks may offer opportunities to add high-quality assets that fit with your long-term strategy."
Footnote 1 Morningstar, "Jobs report shuts door on January Fed rate cut; U.S. CPI data due as focus remains on bond markets," January 13, 2025.
Footnote 2 U.S. Census Bureau. Data collected in October 2024, as of Dec. 12, 2024.
December 20, 2024
Fed rate-cut forecast takes markets by surprise
In a widely expected move, the Federal Reserve (the Fed) announced their third and last rate cut of the year earlier this week — another quarter-point drop. While the announcement was expected, remarks made by Fed chair Jerome Powell indicating a slower pace of cuts, from an expected four to two in 2025, poured cold water on the equity markets. By market close Wednesday, the three major stock indices were down 2.5 to 3 percent or more for the day, while Treasury yields climbed.Footnote 1
"Based on the latest data on inflation, the economy and the job market, the BofA Global Research team was already forecasting only two cuts for 2025," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "Clearly, many market participants expected more."
Why did the markets react the way they did?
Investors have been looking forward to the potential for continued strong economic growth, healthy corporate profits and premium stock valuations in 2025, says Hyzy. The Fed's data-driven forecast, based on uncertainty around the future path of inflation and the labor market, pushed the yields on Treasurys higher and affected equities, particularly in sectors most sensitive to high interest rates, negatively. High-growth equities and shares in sectors sensitive to high rates led the market declines, notes Hyzy.
What's next — and what can investors do?
"Equities have already begun to bounce back, but there's little doubt that investors will continue to remain on edge, especially with a lack of clarity around a possible government shutdown causing more volatility," notes Hyzy. But, amid the uncertainty, some things haven't changed. "As always, it's important to stay diversified and focused on your goals," he adds.
"We still have high conviction in our themes of higher economic growth and profits for 2025, driven by increased productivity, a more normal yield curve, wider participation across the equity markets, a positive view on small- and mid-cap shares, and an emerging asset-light era that will benefit companies more resistant to interest-rate fluctuations." In fact, he adds, "A short-term reset, such as we've just seen, only creates a stronger base from which to begin 2025."
For more insights on how you can prepare for risks and opportunities in the year ahead, watch our Outlook 2025 program
"Get ready for what's next." To learn more about this week's Fed decision and resulting market volatility, read the latest Investment Insights report,
"Fed flashes yellow."
Footnote 1 Reuters, "Stocks dive after Fed cuts rates, signals slower easing pace in 2025," December 19, 2024.
December 13, 2024
Get ready for the asset-light economy
In the information age, corporate dominance no longer necessarily means having the biggest factories and longest production lines. The financial edge increasingly goes to companies with fewer fixed assets and greater flexibility, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "As we look ahead to the new year, the asset-light economy is one of our key growth themes for 2025 and beyond."
The asset-light advantage
"Compared with manufacturing and other asset-heavy industries, asset-light companies — many of them in the tech and healthcare sectors — generally are more focused on intellectual property than real-world assets, and they have more capital to spend on high-growth areas of their businesses," Hyzy says. With less need for credit to finance fixed assets, they're more resistant to interest rate fluctuations and they are often less labor-intensive. "An economy increasingly dominated by asset-light companies could help drive long-term growth and an extended bull market for investors," Hyzy believes.
"The asset-light economy should gain momentum in 2025 and 2026, thanks to some economic bright spots we see developing," he says. "The rapid advance of artificial intelligence and other technologies is already bringing greater productivity and operating leverage to companies across industries. And markets generally are rebalancing away from dominance by a small handful of companies, leaving more room for younger asset-light companies to grow."
But, even as their share of the economy diminishes, asset-heavy industries will remain essential, notes Marci McGregor, head of Portfolio Strategy for the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. In fact, thanks to technology's enormous need for energy and other resources, asset-heavy companies could even experience a boost as they help to meet the need for more infrastructure to power the asset-light economy.
How investors can prepare
"Big picture, asset light's increasing dominance, with its potential to drive higher productivity and profits, is good for the economy and markets," sums up Hyzy. But, notes McGregor, "Valuation of these companies can be a challenge, and that's something investors need to think about in the lens of this new asset-light world." As always, it's important to maintain a diversified portfolio.
August 5, 2024
What's causing the volatility — and how can you respond?
A lower-than expected July jobs report drove markets down on Friday, during a week already beset by volatility.Footnote 1 The 800-point plunge in the Dow Jones Industrial Average raised new concerns about the prospects for an economy that has remained surprisingly resilient throughout 2024. Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, offers four reasons for the latest disruption and four reasons to keep things in perspective.
4 drivers of volatility
- Recession concerns. "As reflected in the jobs report, economic data has been consistently slowing," Hyzy notes. "Investors fear early signs of a recession."
- Overdue rate cuts? Observers increasingly believe the Federal Reserve (the Fed) fell behind by not cutting rates at their July meeting.
- Geopolitics. With November's presidential election and wars abroad, "the geopolitical environment has become more uncertain," Hyzy says.
- Bond-buying pullback. A rate increase by the Bank of Japan and subsequent pull-back on bond buying has upset currency, interest rates and risk assets such as technology stocks globally.
4 reasons for calm
- Recession unlikely. "We believe the economy is still normalizing from pandemic-era disruptions," Hyzy says. "While the road back is rocky, the BofA Global Research team does not expect a recession, all things considered."
- Strong earnings. "Corporate profits remain healthy. We expect low double-digit growth for the S&P 500 this year, and mid to high single digits in 2025," Hyzy believes.
- Rational rate decisions. While rate moves naturally draw extra attention amid volatility, the Fed is working to normalize rates based on inflation and employment trends, rather than panic over a recession, Hyzy says. And potentially significant cuts appear likely soon. "The Fed funds futures market now has a better than 80% probability of a 50-basis-point cut in September."
- AI-powered productivity. "The long-run benefits of generative artificial intelligence (Gen AI) across a number of sectors are just beginning," Hyzy says. "Higher productivity combined with rapid innovation allows for more substantive corporate growth than many observers are seeing."
Expect more volatility, and stay diversified
As the economy continues to work through these challenges, investors should expect above average volatility in the short term, Hyzy says. "Avoid sudden reactions to headlines and market shifts," he suggests. "Stay diversified across and within asset classes and rebalance as necessary." As you consider your long-term investment goals, he adds, "look for periods of market weakness as an opportunity to strategically add to your portfolio."
Footnote 1 MarketWatch, "Stock market today: Dow down 800 points as recession fears bulldoze stocks," August 2, 2024.
July 26, 2024
Can markets top their strong first half of 2024?
Defying predictions of a market letdown, the S&P 500 Index of the largest U.S. stocks surged 14.5% during the first half of 2024. So, can equities maintain that momentum through the rest of the year? History says it often happens.
"Since 1950, in years when the S&P 500 returned greater than 10% in the first half, the index was higher 82.6% of the time in the second half,"Footnote 1 says Kirsten Cabacungan, Investment Strategist for the Chief Investment Office (CIO) at Merrill and Bank of America Private Bank. While past performance doesn't guarantee future results, a recent Chief Investment Office Capital Market Outlook report, "Can U.S. equities take the heat (PDF)?" highlights three factors supporting that hopeful outlook:
- Economic activity, while moderating, continues to outperform expectations, thanks to cooling inflation, a still-solid labor market and consumer spending.
- The rise of generative artificial intelligence (AI) is driving enthusiasm for U.S. companies.
- Corporate earnings are gaining momentum. "Analysts expect S&P 500 earnings to grow by around 11.0% this year and 14.4% in 2025, a big improvement over 2023," Cabacungan says.Footnote 2
What could hold the markets back?
Uncertainties, ranging from global geopolitics to the possibility that inflation could remain above the Federal Reserve's 2% target longer than expected, remain potential roadblocks. And then there's November's contentious presidential election. "The Chicago Board Options Exchange Volatility Index (VIX) has historically risen 25% on average from July to November during election years since 1928," Cabacungan says.Footnote 3 While stocks tend to rally after an election, lingering volatility could dampen second half results, she adds.
Market choppiness could create potential buying opportunities
Despite the markets' strong first-half performance, the economy is still working through extraordinary disruptions from the pandemic. "Until that's complete, investors should anticipate some market choppiness," Cabacungan notes. She suggests staying diversified both across and within asset classes and looking for opportunities to strategically add to your portfolio during times of weakness.
Footnote 1 Bloomberg. Data from January 1950 to December 2023.
Footnote 2 FactSet. Data as of June 26, 2024.
Footnote 3 BofA Global Research. March 2024. Based on data for all U.S. elections since 1928.
Important Disclosures
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Opinions are as of the date of these articles and are subject to change.
Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
All recommendations must be considered in the context of an individual investor's goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be in the best interest of all investors.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
These risks are magnified for investments made in emerging markets. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.
Income from investing in municipal bonds is generally exempt from Federal and state taxes for residents of the issuing state. While the interest income is tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the Federal Alternative Minimum Tax (AMT).
Retirement and Personal Wealth Solutions is the institutional retirement business of Bank of America Corporation ("BofA Corp.") operating under the name "Bank of America." Investment advisory and brokerage services are provided by wholly owned non-bank affiliates of BofA Corp., including Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as "MLPF&S" or "Merrill"), a dually registered broker-dealer and investment adviser and Member SIPC. Banking activities may be performed by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A., Member FDIC.
You have choices about what to do with your 401(k) or other type of plan-sponsored accounts. Depending on your financial circumstances, needs, goals and employer plan terms, you may choose to roll over to an IRA or convert to a Roth IRA, roll over a 401(k) from a prior employer to a 401(k) at your new employer, take a distribution, or leave the account where it is. Each choice may offer different investments and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment (particularly with reference to employer stock), and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care. For more information visit our rollover page or call Merrill at 888.637.3343.
Diversification does not ensure a profit or protect against loss in declining markets.
Sustainable and Impact Investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.
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