Expect a 'proud bull' market in 2026, not a stampeding one: BofA's Chris Hyzy

Core Viewpoint - The investment outlook for 2026 is characterized as a "proud bull" market, focusing on profit growth rather than multiple expansion, particularly in midterm election years which tend to bring more volatility [1]. Market Dynamics - Current market dynamics show small caps at all-time highs while the NASDAQ is lagging, suggesting this may not be a temporary phenomenon but indicative of future market conditions [3][4]. - There is an expectation of increased volatility in the tech and communication services sectors as growth rates are questioned amidst ongoing capital investment buildout [4]. Small Cap Performance - Small caps are gaining traction and have been overweighted since the beginning of the year, with fiscal relief measures such as 100% expensing and lower rates benefiting this segment [5][6]. - The overall sentiment towards small caps is positive, with an overweight position in large cap, midcap, and small cap equities [6]. Federal Reserve Actions - The Federal Reserve's recent liquidity announcement marks a shift from quantitative tightening to increasing liquidity, which is viewed as a risk-on move aimed at stabilizing funding markets [7][8]. - The Fed's proactive measures are expected to support market performance, with a potential adjustment in liquidity levels anticipated [8].