BofA Global Research Forecasts Stronger-than-Expected Economic Growth in 2026

Rhea-AI Summary

BofA Global Research (NYSE: BAC) forecasts stronger-than-consensus economic growth in 2026 driven by sustained AI investment, fiscal stimulus, and higher business capex. Key calls include US 4Q/4Q GDP of 2.4% in 2026, China GDP of 4.7% in 2026, 14% EPS growth for US equities with only 4–5% S&P price appreciation (year-end target 7,100), two Fed cuts expected in 2026, and lower private credit returns (5.4% expected vs 9% in 2025). The research warns of heightened volatility as AI’s macro effects become clearer.

Positive

• US GDP forecast +2.4% 4Q/4Q in 2026
• China GDP forecast +4.7% in 2026
• US EPS growth forecast +14% for 2026
• S&P year-end target of 7100

Negative

• S&P price appreciation limited to 4–5% despite EPS +14%
• Private credit returns forecast down to 5.4% in 2026 from 9% in 2025
• Elevated market volatility tied to AI macro impact

Insights

Macro Strategist

BofA projects stronger-than-consensus 2026 growth driven by AI investment and fiscal support, with mixed market implications.

BofA expects above-consensus GDP for the US and China, with the US team forecasting 2.4% 4Q/4Q growth in 2026 and China at 4.7% in 2026. The research links sustained AI investment, fiscal stimulus ("One Big Beautiful Bill Act"), restored tax incentives, and lagged effects from Fed rate cuts to higher business investment and GDP.

The call rests on several explicit dependencies: continuation of the named fiscal measures, realization of tax-policy effects on capex, and the timing of Fed rate cuts (one in Dec 2025 then two in 2026). Risks include the pace of AI capex translating into durable productivity gains and regional variability in housing and trade; these factors could materially alter yield and equity outcomes.

Concrete items to watch include the Fed’s stated cuts and timing, actual AI investment spend versus projections, and any legislative progress on the cited bill within the next 6–12 months. Market responses may show muted S&P price gains despite earnings growth, while capex-sensitive sectors and emerging markets could outperform on a 2026 horizon.

AI Investment Growth and Global Policy Shifts Poised to Drive Market Returns Despite Volatility

NEW YORK, Dec. 2, 2025 /PRNewswire/ -- 2025 has shown to be a strong year in markets—both in the US and abroad—leaving investors wondering how much is left in this rally. The big themes of the past year—uncertain fiscal policy, the AI 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, BofA Global Research economists and strategists are bracing for more volatility in 2026. 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 AI," said Candace Browning, head of BofA Global Research. "We are optimistic on the two most influential economies, expecting above-consensus GDP growth for the US and China. Furthermore, concerns about an imminent AI bubble are overstated, in our view, and we expect AI investment to continue to grow at a solid pace in 2026."

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

1. More bullish than consensus on 2026 US GDP growth
   Senior US Economist Aditya Bhave is expecting 4Q/4Q GDP growth of 2.4% in 2026. The US 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. AI boom – but no bubble yet
   AI investment spend has already boosted GDP growth and our economists expect continued growth next year. Our analysis of past bubbles suggests the technology sector of the US 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 US Dollar, lower rates, and low oil prices provide a solid backdrop for emerging markets to continue to perform well in 2026. 
4. China's economy forges ahead
   Helen Qiao, greater Chief China economist and head of Asia Economics, raised our China GDP growth forecast to ahead of consensus, and is now expecting 4.7% growth in 2026 and 4.5% in 2027. With positive signs emerging from recent trade talks and stimulus taking hold, risks to our forecast are skewed to the upside.
5. Muted S&P returns, while capex surges
   Savita Subramanian, head of US Equity Strategy, expects 14% EPS growth but only 4-5% S&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. UST yields could surprise to the downside in 2026; Two Fed cuts expected
   Nearly half of investors we surveyed expect the 10Y Treasury to end 2026 between 4-4.5%, 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 US Rates Strategy, expects the 10Y to end 2026 at 4-4.25% with risks to the downside. Our US economists expect the Fed to cut rates by 25 basis points at the December 2025 meeting and twice in 2026 (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 2026. 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 AI impact becomes more clear
   A better understanding of the impact that AI 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 2026; High Yield looks more attractive
   Head of US Credit Strategy Neha Khoda expects 5.4% total returns for private credit in 2026, down from 9% 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 2026, and additional tailwinds could come from easier monetary and fiscal policy; reduced policy and trade uncertainty; and renewed demand.

BofA Global Research

The BofA 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 No. 2 Global Research Firm of 2024 by Institutional Investor magazine; No. 1 in the 2025 Institutional Investor Developed Europe survey; No. 1 in the 2025 Emerging Europe, Middle East & Africa survey; No. 2 in the 2025 Institutional Investor All-America survey; and No. 2 in the 2024 Institutional Investor Global Fixed-Income Research survey. For more information about any awards cited, visit https://rsch.baml.com/awards.

Bank of America

Bank of America is one of the world's leading financial institutions, serving individual consumers, small and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving nearly 70 million consumer and small business clients with approximately 3,600 retail financial centers, approximately 15,000 ATMs (automated teller machines) and award-winning digital banking with approximately 59 million verified digital users. Bank of America is a global leader in wealth management, corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business households through a suite of innovative, easy-to-use online products and services. The company serves clients through operations across the United States, its territories and more than 35 countries. Bank of America Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange.

For more Bank of America news, including dividend announcements and other important information, visit the Bank of America newsroom and register for news email alerts.

Reporters may contact

Melissa Anchan, Bank of America
Phone: 1.646.532.9241
melissa.anchan@bofa.com

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SOURCE Bank of America Corporation

FAQ

What US GDP growth does BofA Global Research forecast for 2026 and how might that affect BAC shareholders?

BofA forecasts 2.4% 4Q/4Q US GDP in 2026; stronger growth can support banking activity and corporate lending, potentially benefiting BAC revenue.

How does BofA forecast China growth for 2026 and what is the implication for global markets?

BofA raised China GDP to 4.7% in 2026, which the firm says increases upside risk to global demand and emerging markets performance.

What S&P 500 target and EPS growth did BofA predict for 2026 (ticker BAC relevance)?

BofA expects 14% EPS growth but only 4–5% S&P price appreciation with a year-end target of 7,100, a mixed signal for bank stock valuations including BAC.

How many Fed cuts does BofA expect in 2026 and what yield path do they predict?

BofA expects two Fed cuts in 2026 and projects the 10-year Treasury ending 2026 around 4–4.25% with downside risk.

What did BofA say about private credit and fixed income returns for 2026?

BofA expects private credit total returns of 5.4% in 2026 (down from 9% in 2025) and views high-yield as relatively more attractive.

Why does BofA expect more market volatility in 2026 and how could that impact BAC shares?

BofA cites uncertain AI effects on growth, inflation, and capex plus fiscal dynamics; increased volatility could raise earnings unpredictability for banks like BAC.