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Bank Of America's 10 Calls For 2026: Why The AI Party Isn't Over Yet

MarketDash Editorial Team
4 days ago
Bank of America sees stronger U.S. and China growth ahead, predicts AI investment will keep rolling, and expects Treasury yields to fall more than most investors think.

After a stellar 2025 across U.S. and international markets, plenty of investors are wondering if we're running out of runway. Bank of America Global Research has a different take: the global economy is heading into 2026 with more momentum than people realize.

The bank's outlook calls for stronger growth in both the U.S. and China, continued AI-fueled investment, and a notable shift in market leadership. Candace Browning, head of BofA Global Research, put it plainly: "Despite lingering concerns, our team remains bullish on the economy and AI."

She added that fears of an imminent AI bubble are "overstated" and projected both U.S. and China GDP growth would come in above consensus expectations in 2026. Here's what Bank of America's research team is calling for in the year ahead.

U.S. Economy Has More Gas In The Tank

Bank of America is more optimistic than the broader market on U.S. growth prospects. Senior economist Aditya Bhave expects 2.4% annual GDP growth in 2026, outpacing consensus forecasts. The drivers? Fiscal support from the One Big Beautiful Bill Act, restored Tax Cuts and Jobs Act incentives, friendlier trade policy, stronger business investment, and the delayed impact of Fed rate cuts still working through the system.

The bank's view is that the macro backdrop isn't nearly as tired as many investors assume heading into next year.

AI Investment Cycle Keeps Building

The investment bank believes the AI boom will continue expanding rather than imploding. AI-related capital expenditure on data centers, semiconductor capacity, and automation has already given GDP a boost and should remain a powerful driver throughout 2026.

Strategists see capital spending tied to these areas staying robust, contributing to productivity gains and supporting corporate earnings. The iShares Semiconductor ETF (SOXX) has rallied over 40% year-to-date and is up a staggering 450% since OpenAI released ChatGPT in November 2022.

Emerging Markets Get A Better Hand

Emerging markets could see improved performance thanks to a trifecta of favorable conditions: a weaker U.S. dollar, lower U.S. interest rates, and soft oil prices. David Hauner, Bank of America's emerging-market strategist, notes this combination eases financing pressures and should support stronger capital flows into developing economies next year.

Year-to-date, the iShares MSCI Emerging Market ETF (EEM) is up 30%, actually outperforming the popular Vanguard S&P 500 ETF (VOO).

China Growth Outlook Gets An Upgrade

Bank of America upgraded its China forecast. Chief economist Helen Qiao now expects 4.7% growth in 2026 and 4.5% in 2027, both above consensus estimates. "With positive signs emerging from recent trade talks and stimulus taking hold, risks to our forecast are skewed to the upside," Qiao stated.

S&P 500 Earnings Strong, Price Gains More Modest

Equity analyst Savita Subramanian expects S&P 500 earnings per share to climb 14% in 2026, but she sees only 4%-5% price upside, targeting 7,100 for the index. Her reasoning? The market may be transitioning away from a consumption-driven cycle toward one increasingly powered by capital expenditure, particularly in technology and infrastructure.

Treasury Yields Could Drop More Than Expected

Many investors expect the 10-year Treasury to end 2026 between 4% and 4.5%, but BofA rates strategist Mark Cabana projects 4%-4.25%. He anticipates Fed cuts in December 2025 and again in June and July 2026 will pressure yields lower.

The bank thinks investors may be underestimating just how much impact Fed easing will have on bond markets.

Home Prices Hold Steady With Upside Potential

BofA's securitized products team, led by Chris Flanagan, anticipates flat national home-price appreciation in 2026 coupled with an uptick in housing turnover. Regional differences could widen depending on local supply conditions and affordability trends.

With mortgage rates expected to drift lower alongside Fed rate cuts, the risks to home prices appear slightly tilted to the upside rather than down.

Volatility Set To Increase

The bank expects volatility to pick up in 2026 as investors gain a clearer understanding of how AI is actually reshaping economic fundamentals. The reassessment of how artificial intelligence affects GDP potential, inflation dynamics, and corporate capital expenditure cycles is likely to trigger sharper swings across asset classes.

Bank of America also cites fiscal dominance and the K-shaped recovery as additional sources of market turbulence ahead.

Private Credit Returns Cool Down

Private credit returns may moderate after a strong 2025. Strategist Neha Khoda sees total returns falling to about 5.4% in 2026 from roughly 9% this year. That shift could push investors toward high-yield bonds or other income-generating assets offering better relative value.

Copper Positioned For Another Rally

Despite a 35% year-to-date gain, copper—as tracked by the United States Copper Fund (CPER)—could extend its run into 2026. Tight supply supported prices in 2025 even as construction and manufacturing activity remained weak.

BofA metals strategist Michael Widmer expects supply constraints to persist, with easier monetary policy and improved global demand adding further support to prices.

Back to News

Bank Of America's 10 Calls For 2026: Why The AI Party Isn't Over Yet

MarketDash Editorial Team
4 days ago
Bank of America sees stronger U.S. and China growth ahead, predicts AI investment will keep rolling, and expects Treasury yields to fall more than most investors think.

After a stellar 2025 across U.S. and international markets, plenty of investors are wondering if we're running out of runway. Bank of America Global Research has a different take: the global economy is heading into 2026 with more momentum than people realize.

The bank's outlook calls for stronger growth in both the U.S. and China, continued AI-fueled investment, and a notable shift in market leadership. Candace Browning, head of BofA Global Research, put it plainly: "Despite lingering concerns, our team remains bullish on the economy and AI."

She added that fears of an imminent AI bubble are "overstated" and projected both U.S. and China GDP growth would come in above consensus expectations in 2026. Here's what Bank of America's research team is calling for in the year ahead.

U.S. Economy Has More Gas In The Tank

Bank of America is more optimistic than the broader market on U.S. growth prospects. Senior economist Aditya Bhave expects 2.4% annual GDP growth in 2026, outpacing consensus forecasts. The drivers? Fiscal support from the One Big Beautiful Bill Act, restored Tax Cuts and Jobs Act incentives, friendlier trade policy, stronger business investment, and the delayed impact of Fed rate cuts still working through the system.

The bank's view is that the macro backdrop isn't nearly as tired as many investors assume heading into next year.

AI Investment Cycle Keeps Building

The investment bank believes the AI boom will continue expanding rather than imploding. AI-related capital expenditure on data centers, semiconductor capacity, and automation has already given GDP a boost and should remain a powerful driver throughout 2026.

Strategists see capital spending tied to these areas staying robust, contributing to productivity gains and supporting corporate earnings. The iShares Semiconductor ETF (SOXX) has rallied over 40% year-to-date and is up a staggering 450% since OpenAI released ChatGPT in November 2022.

Emerging Markets Get A Better Hand

Emerging markets could see improved performance thanks to a trifecta of favorable conditions: a weaker U.S. dollar, lower U.S. interest rates, and soft oil prices. David Hauner, Bank of America's emerging-market strategist, notes this combination eases financing pressures and should support stronger capital flows into developing economies next year.

Year-to-date, the iShares MSCI Emerging Market ETF (EEM) is up 30%, actually outperforming the popular Vanguard S&P 500 ETF (VOO).

China Growth Outlook Gets An Upgrade

Bank of America upgraded its China forecast. Chief economist Helen Qiao now expects 4.7% growth in 2026 and 4.5% in 2027, both above consensus estimates. "With positive signs emerging from recent trade talks and stimulus taking hold, risks to our forecast are skewed to the upside," Qiao stated.

S&P 500 Earnings Strong, Price Gains More Modest

Equity analyst Savita Subramanian expects S&P 500 earnings per share to climb 14% in 2026, but she sees only 4%-5% price upside, targeting 7,100 for the index. Her reasoning? The market may be transitioning away from a consumption-driven cycle toward one increasingly powered by capital expenditure, particularly in technology and infrastructure.

Treasury Yields Could Drop More Than Expected

Many investors expect the 10-year Treasury to end 2026 between 4% and 4.5%, but BofA rates strategist Mark Cabana projects 4%-4.25%. He anticipates Fed cuts in December 2025 and again in June and July 2026 will pressure yields lower.

The bank thinks investors may be underestimating just how much impact Fed easing will have on bond markets.

Home Prices Hold Steady With Upside Potential

BofA's securitized products team, led by Chris Flanagan, anticipates flat national home-price appreciation in 2026 coupled with an uptick in housing turnover. Regional differences could widen depending on local supply conditions and affordability trends.

With mortgage rates expected to drift lower alongside Fed rate cuts, the risks to home prices appear slightly tilted to the upside rather than down.

Volatility Set To Increase

The bank expects volatility to pick up in 2026 as investors gain a clearer understanding of how AI is actually reshaping economic fundamentals. The reassessment of how artificial intelligence affects GDP potential, inflation dynamics, and corporate capital expenditure cycles is likely to trigger sharper swings across asset classes.

Bank of America also cites fiscal dominance and the K-shaped recovery as additional sources of market turbulence ahead.

Private Credit Returns Cool Down

Private credit returns may moderate after a strong 2025. Strategist Neha Khoda sees total returns falling to about 5.4% in 2026 from roughly 9% this year. That shift could push investors toward high-yield bonds or other income-generating assets offering better relative value.

Copper Positioned For Another Rally

Despite a 35% year-to-date gain, copper—as tracked by the United States Copper Fund (CPER)—could extend its run into 2026. Tight supply supported prices in 2025 even as construction and manufacturing activity remained weak.

BofA metals strategist Michael Widmer expects supply constraints to persist, with easier monetary policy and improved global demand adding further support to prices.