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

Core Insights - 2025 has been a strong year for markets globally, with ongoing themes such as uncertain fiscal policy, AI surge, and excess liquidity expected to evolve into 2026 [1][2] - BofA Global Research remains optimistic about the economy and AI investment growth, expecting above-consensus GDP growth for both the US and China [2] Economic Outlook - US GDP growth is projected at 2.4% for 2026, driven by factors like the One Big Beautiful Bill Act and restored tax benefits [2] - China's GDP growth forecast has been raised to 4.7% for 2026, with positive trade talks and stimulus measures contributing to this outlook [2] AI Investment - AI investment is anticipated to continue growing, with no imminent bubble expected, as it has already positively impacted GDP growth [2] Emerging Markets - A weaker US Dollar, lower interest rates, and low oil prices are expected to support emerging markets in 2026 [2] S&P 500 and Corporate Earnings - EPS growth for the S&P 500 is expected at 14%, but price appreciation is forecasted at only 4-5%, indicating a potential shift from a consumption-driven to a capex-driven market [2] Interest Rates and Housing Market - The 10Y Treasury yield is expected to end 2026 between 4-4.25%, with two Fed rate cuts anticipated in 2026 [2] - Housing prices are expected to remain flat, with regional variations and potential upside risks depending on Fed policy [2] Market Volatility - Increased clarity on AI's impact on growth and inflation is likely to contribute to market volatility in 2026 [2] Private Credit and Commodities - Total returns for private credit are expected to decrease to 5.4% in 2026, while high-yield bonds may become more attractive [2] - Copper prices are projected to rise due to tight supply and strong demand, supported by favorable monetary and fiscal policies [2]