Investment Rating - The report maintains a very bullish investment rating with a BofA Bull & Bear Indicator at 9.0, indicating a favorable outlook for equities despite recent outflows from tech stocks and emerging market debt [13][36]. Core Insights - The report emphasizes a strategy of "long boom, short bubble," suggesting that investors should focus on value cyclicals while reducing exposure to high-risk assets [18]. - It highlights the significant inflows into cash and bonds, with $148.5 billion flowing into cash and $11.1 billion into bonds, indicating a cautious market sentiment [10][16]. - The report notes that geopolitical tensions are driving investors to seek hedges, particularly in energy and materials, with Venezuela and the Arctic being key areas of interest due to their substantial oil reserves [2][18]. Summary by Sections Market Performance - Year-to-date performance shows Bitcoin at 4.1%, gold at 2.9%, global stocks at 2.9%, and US stocks at 1.5%, while oil has declined by 1.7% [1]. - The report indicates that historically, oil has been the best-performing asset three months following a war, with returns of 8.3% [3]. Investment Flows - Recent flows indicate $2.2 billion into stocks, $1.1 billion into gold, and $1.1 billion into crypto, while there were significant outflows from US stocks ($19.0 billion) and emerging market debt ($6.0 billion) [10][16]. - The report notes that private clients have shifted their allocations, with a focus on high dividend stocks, munis, and REITs, while selling bank loans and tech stocks [12]. Asset Allocation Strategy - The recommended strategy for 2026 includes long positions in bonds, international stocks, and gold, while shorting investment-grade bonds and the US dollar [19]. - The report suggests that the optimal time to go long is when market sentiment is bearish, and the Fed is easing, which aligns with current market conditions [17]. Geopolitical Context - The report discusses the geopolitical landscape, noting that the US's shift from exceptionalism to expansionism could favor a contrarian long position on the US dollar [2]. - It highlights the potential for safe-haven demand to spread to the US dollar due to geopolitical tensions, particularly in relation to oil prices [18].

Accessible version The Flow Show Quiz Show Chart 2: Ferrari crashing vs General Motors Ferrari vs General Motors (price relative) Source: BofA Global Investment Strategy, Bloomberg BofA GLOBAL RESEARCH Dec'25 0 2 4 6 8 10 12 14 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 Ferrari vs General Motors (USD price relative) Scores on the Doors: gold 62.1%, stocks 20.3%, IG bonds 10.0%, HY 9.9%, govt bonds 6.0%, commodities 5.9%, cash 4.0%, bitcoin -2.7%, US dollar -9.4%, oil -19.5% YTD. BofA Bull & Bear Indicator: ...

Investment Rating - The report indicates a neutral investment sentiment with the BofA Bull & Bear Indicator at 6.0, down from 6.1, suggesting a cautious approach to market conditions [7][41]. Core Insights - There has been a record inflow of $97 billion to global bond funds over the past four weeks, with year-to-date (YTD) inflows for bonds annualizing at a record $700 billion, primarily driven by investment-grade (IG) bonds [1][3]. - The report highlights significant inflows to IG bonds, totaling $57.4 billion over the past four weeks, marking the largest inflow since July 2020 [2][11]. - In contrast, there have been notable outflows from European equities, with a $2.3 billion outflow, the largest in four months, and a continued trend of outflows from UK equities for 18 consecutive weeks [2][17]. Summary by Sections Asset Class Flows - Equities experienced a $3.0 billion inflow, with $10.4 billion inflow to ETFs and $7.3 billion outflow from mutual funds [16]. - Bonds saw inflows of $23.0 billion over the past week, continuing a streak of 17 weeks of positive inflows [17]. - Precious metals recorded a slight inflow of $0.1 billion over the past two weeks [16]. Investment Strategies - BofA private clients have allocated 64.1% of their assets under management (AUM) to stocks, 18.1% to bonds, and 10.7% to cash, indicating a strong preference for equities [3][29]. - The report notes that BofA private clients have been buying industrials, high-yield (HY) bonds, and bank loan ETFs while selling energy, healthcare, and staples [3][23]. Market Indicators - The BofA Bull & Bear Indicator reflects a neutral market sentiment, suggesting that investor sentiment is currently balanced, with no extreme bullish or bearish positions [41]. - The report emphasizes the importance of monitoring upcoming economic indicators, including payrolls and inflation data, which could influence market dynamics [1].