A new note from Bank of America (BofA) Research analysts, circulated today, has offered a surprising contrarian and bullish outlook for the market, anticipating “not just a cyclical recovery, but a boom,” despite fears of stagflation and modest recovery throughout the market.
The narrative remains conservative among many, as 70 percent of all fund managers in June predicted stagflation and only 10 percent leaned towards growth and inflation. However, the Bank of America (B of A) Research analyst team led by Savita Subramanian argues that “key tail risk that may not be priced in is not just a cyclical recovery, but a boom” with five factors contributing to this.
These factors include political will, Washington’s “One Big Beautiful Bill Act” for domestic manufacturing, stimulus and inflationary forces abroad, expansion of capital expenditures, and macro signals using its own “Regime Indicator.”
With the upcoming U.S. midterm elections, policymakers are pushing a pro-growth agenda. The recently passed “One Big Beautiful Bill Act” (OBBBA) has pushed for increased domestic manufacturing. Even before the act was passed, many large American companies pledged manufacturing, technology, and infrastructure investments.
Overseas, Germany recently implemented the largest stimulus package in the history of the European Union. The EU stimulus plan, NextGeneration EU, has added another €806.9 billion (about $880 billion) through 2026, and many EU countries have layered on more investments for their economies. Momentum has been building in many parts of the world, with Japan, South Korea, Canada, and Australia adding fiscal processes to prevent sector slowdowns and ensure household purchasing power. China has pledged enormous stimulus of 1.3 trillion yuan ($179 billion) in special treasury bonds for 2025 and 4.4 trillion yuan of local government special-purpose bonds.
Hyperscalers such as Amazon $AMZN, Microsoft $MSFT, Alphabet $GOOGL, and Meta $META are expanding significantly with $700 billion in capital expenditures in 2025-26. Foreign companies located in the U.S. are also expanding manufacturing capacity nationwide while local municipalities are rebuilding and revamping older or outdated infrastructure.
Lastly, BofA analysts refer to “Regime Indicator,” a proprietary model, that tracks macro signals from corporate earnings per share to GDP forecasts, which is on the cusp of flipping from downturn to recovery. This market change, if it occurs, historically leads to an uptick in value stocks.
https://commission.europa.eu/strategy-and-policy/recovery-plan-europe_en
