NEW YORK, New YorkN.Y. – twenty twenty five2025 has shown to be a strong year in markets—both in the U SUS and abroad—leaving investors wondering how much is left in this rally. The big themes of the past year—uncertain fiscal policy, the A IAI surge, China’s overcapacity, record fiscal deficits, and excess liquidity—are evolving rather than disappearing. As the world begins to better understand how artificial intelligence impacts economic growth, inflation, and corporate investment, B of ABofA Global Research economists and strategists are bracing for more volatility in twenty twenty six2026. The AI-driven equity boom remains a defining feature of the “K-shaped” economy, adding another layer of risk.

“Despite these lingering concerns, our team remains bullish on the economy and A IAI,” said Candace Browning, head of B of ABofA Global Research. “We are optimistic on the two most influential economies, expecting above-consensus G D PGDP growth for the U SUS and China. Furthermore, concerns about an imminent A IAI bubble are overstated, in our view, and we expect A IAI investment to continue to grow at a solid pace in twenty twenty six2026.”

Key macro calls made for the markets and economy in the year ahead are:

1. More bullish than consensus on twenty twenty six2026 U SUS G D PGDP growth
   Senior U SUS Economist Aditya Bhave is expecting fourth quarter fourth quarter4Q/4Q G D PGDP growth of two point four percent2.4% in twenty twenty six2026. The U SUS Economics team’s above-consensus views are fueled by several factors: an expected boost by the One Big Beautiful Bill Act; increased business investment due to restoration of Tax Cuts and Jobs Act benefits; trade policy; fiscal stimulus; and the lagged effects from rate cuts by the Federal Reserve.
2. A IAI boom – but no bubble yet
   A IAI investment spend has already boosted G D PGDP growth and our economists expect continued growth next year. Our analysis of past bubbles suggests the technology sector of the U SUS stock market is still on solid ground.  
3. Emerging Markets get a boost
   Head of Global Emerging Markets Fixed Income Strategy David Hauner says a weaker U SUS Dollar, lower rates, and low oil prices provide a solid backdrop for emerging markets to continue to perform well in twenty twenty six2026.  
4. China’s economy forges ahead
   Helen Qiao, greater Chief China economist and head of Asia Economics, raised our China G D PGDP growth forecast to ahead of consensus, and is now expecting four point seven percent4.7% growth in twenty twenty six2026 and four point five percent4.5% in twenty twenty seven2027. With positive signs emerging from recent trade talks and stimulus taking hold, risks to our forecast are skewed to the upside. 
5. Muted S and PS&P returns, while capex surges
   Savita Subramanian, head of U SUS Equity Strategy, expects fourteen percent14% E P SEPS growth but only four to five percent4-5% S and PS&P price appreciation, with a year-end target of 7100 for the index. We are watching for signs that suggest we could be shifting from a consumption-driven bull market to a capex-driven one.
6. U S TUST yields could surprise to the downside in twenty twenty six2026; Two Fed cuts expected
   Nearly half of investors we surveyed expect the ten year10Y Treasury to end twenty twenty six2026 between four to four point five percent4-4.5%, which is flat to up from current levels. Fed cuts and a focus on lowering inflation may mean investors are too pessimistic on bond prices. Mark Cabana, head of U SUS Rates Strategy, expects the ten year10Y to end twenty twenty six2026 at four to four point two five percent4-4.25% with risks to the downside. Our U SUS economists expect the Fed to cut rates by 25 basis points at the December twenty twenty five2025 meeting and twice in twenty twenty six2026 (June and July).
7. Flattish home prices with risks to the upside; may vary by region
   Chris Flanagan and our Securitized Products team expect housing to become front and center in twenty twenty six2026. We expect flat home price appreciation and an improvement in housing turnover. Risks are skewed to the upside dependent on Fed policy.
8. Expect volatility, especially as A IAI impact becomes more clear
   A better understanding of the impact that A IAI has on growth, inflation and capex will likely cause market volatility. The K-shaped economic recovery and fiscal dominance are other sources of expected turbulence. 
9. Private credit returns likely lower in twenty twenty six2026; High Yield looks more attractive
   Head of U SUS Credit Strategy Neha Khoda expects five point four percent5.4% total returns for private credit in twenty twenty six2026, down from nine percent9% this year. This potential for lower returns will impact allocation decisions, and investors may pivot to high-yield bonds or other asset classes instead.  
10. Copper to perform on tight supply, strong demand
    Copper has pushed higher this year even with tepid demand from manufacturing and construction. Metals Strategist Michael Widmer expects continued supply challenges in twenty twenty six2026, and additional tailwinds could come from easier monetary and fiscal policy; reduced policy and trade uncertainty; and renewed demand. 

BofA Global Research

The B of ABofA Global Research franchise covers approximately 3,500 stocks and over 1,300 credits globally and ranks in the top tier in many external surveys. Most recently, the group was named Number twoNo. 2 Global Research Firm of twenty twenty four2024 by Institutional Investor magazine; Number oneNo. 1 in the twenty twenty five2025 Institutional Investor Developed Europe survey; Number oneNo. 1 in the twenty twenty five2025 Emerging Europe, Middle East & Africa survey; Number twoNo. 2 in the twenty twenty five2025 Institutional Investor All-America survey; and Number twoNo. 2 in the twenty twenty four2024 Institutional Investor Global Fixed-Income Research survey. Learn more about any awards cited (PDF).

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