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BofA Global Research Anticipates Strong Economic Growth Ahead in 2026

As 2025 wraps up, it's clear that markets have displayed resilience both in the US and globally. Investors are left contemplating the extent of this market rally, fueled largely by pivotal themes such as fiscal policy uncertainties, a surge in artificial intelligence (AI) adoption, China’s industrial overcapacity, and persistent fiscal deficits paired with excess liquidity. In light of these factors, economists and strategists at BofA Global Research are preparing for increased volatility as we move into 2026.

Candace Browning, head of BofA Global Research, expressed confidence in the resilience of the economy despite these lingering apprehensions. "Our outlook remains bullish on both the economy and AI," she noted, highlighting expectations for above-average GDP growth from major economies like the US and China.

Key Projections for 2026

BofA's economists have made a series of macroeconomic forecasts that paint a picture of growth amidst uncertainty:

• - Robust US GDP Growth: Senior US Economist Aditya Bhave has predicted a 2.4% growth rate for the US economy in 2026. This optimistic outlook is primarily attributed to factors such as the anticipated benefits from the One Big Beautiful Bill Act, a rebound in business investments due to restored tax benefits from the Tax Cuts and Jobs Act, and supportive trade and fiscal policies.

• - AI Boom Without a Bubble: As AI-related investments have already had a noticeable impact on GDP growth, BofA's projections indicate ongoing expansion in this sector. The tech industry, as analyzed against historical bubbles, appears to maintain a sturdy ground despite fears of a potential AI bubble.

• - Emerging Markets' Growth Prospects: Head of Global Emerging Markets Fixed Income Strategy David Hauner anticipates that a weaker US Dollar, lowering interest rates, and low oil prices will cultivate an environment favorable for emerging markets to thrive in 2026.

• - China's Economic Momentum: Helen Qiao, BofA's chief economist for China, has adjusted her GDP growth forecast for China to a promising 4.7% in 2026. The positive outcomes from recent trade negotiations and governmental stimulus efforts might lead to further upward revision of these figures.

• - Slightly Modest Stock Performance: Meanwhile, Savita Subramanian from the US Equity Strategy team expects 14% growth in earnings per share but only a 4-5% increase in S&P 500 prices, signaling caution as markets transition from consumer-led growth to capital expenditure-driven dynamics.

• - Treasury Yields Outlook: In the bond market, a survey indicated that nearly half of the investors foresee the 10-year Treasury yield ending 2026 between 4-4.5%. However, with anticipated interest rate cuts from the Federal Reserve to curb inflation, prospects may lean towards lower bond yields.

• - Flat Housing Market: BofA’s team predicts that housing prices will remain stable, although regional variations may exist, driven by the Federal Reserve’s policies.

Expectations of Market Volatility

The forthcoming year is expected to witness continued market fluctuations, particularly as investors grow increasingly aware of how AI influences economic indicators like growth, inflation, and capital expenditure. The ongoing K-shaped recovery will also contribute to a tumultuous investment environment.

Sector Insights

Investors might face a shift towards high-yield bonds as returns from private credit are expected to decline, projected at 5.4% in 2026, a decrease from this year's 9%. BofA's analysis also points to tight copper supply combined with substantial demand as a potential strong performer amid easier governmental fiscal policies.

Conclusion

BofA Global Research continues to monitor these economic trends closely, and their research division’s reputation stands tall in the financial landscape, having recently received numerous accolades. As we stride into 2026, the intertwining of AI developments and economic growth promises an intriguing and unpredictable landscape for businesses and investors alike.

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