Bank of America's Aditya Bhave shares his 2026 economic outlook

Economic Forecast - The company is optimistic about the economic outlook for next year, citing five tailwinds that will contribute to GDP growth, including fiscal policy, monetary stimulus from Fed cuts, AI-related growth, supportive trade policy, and positive base effects from previous shutdowns [2][3]. K-Shaped Economy - The current economic situation is characterized as a K-shaped economy, where lower-income spending is stabilizing, supported by strong upper-income spending, which is expected to help stabilize the job market [3][5]. - The most concerning type of K-shaped economy would be one where upper-income spending is weak while lower-income spending is also declining, but this is not the case currently [4][5]. Labor Market Dynamics - The labor market is closely tied to consumer spending, which typically leads job growth rather than the other way around, indicating that resilience in consumer spending bodes well for future labor market stability [7][8]. - The unemployment rate is expected to stabilize and potentially decrease in the latter half of next year, although significant acceleration in job growth is not anticipated [8]. Consumer Sentiment - Consumer sentiment has been weak despite strong consumer spending, and this disconnect may continue due to factors such as cumulative price increases and political polarization [9][10]. - The midterm elections are expected to influence trade policy positively, with the administration likely to focus on delivering favorable news for the economy and stock market, potentially through trade agreements [11].