①Bank of America issued an optimistic outlook, predicting that the economies of the United States and China will be stronger than expected in 2026; ②The bank believes that the U.S. stock market may be undergoing a structural shift from being "consumer-driven" to "capital expenditure-driven," with AI infrastructure construction becoming a key driver of the new cycle.
As we approach 2026, Bank of America, one of the largest banks on Wall Street, issued an optimistic outlook stating that next year's economy will be stronger than most anticipate, particularly in the United States and China.
In its latest report, the global research team at Bank of America cited the bank’s earlier December forecasts, clearly indicating a stance more optimistic than the consensus view. Senior U.S. economist Aditya Bhave previously projected that the U.S. GDP growth rate for Q4 2026 would reach 2.4% year-over-year, higher than the widely predicted 2%.
Candace Browning, head of Bank of America Global Research, summarized this tone, noting that the team remains "bullish on the economy and artificial intelligence" and is "optimistic about the two most influential economies, expecting GDP growth in the United States and China to exceed market expectations."
Of course, Browning’s team’s optimism does not “stop at” 2026. The bank also anticipates that U.S. economic growth will remain around 2.2% in 2027, suggesting that Bank of America expects a long-term and moderate expansion of the U.S. economy rather than a short-lived boom.
The bank noted that recent trade negotiations have shown positive signs while domestic stimulus policies in China are gaining momentum, making economic activity more resilient than previously anticipated.
Underlying Drivers
Bank of America emphasized that this “stronger-than-expected” growth in the U.S. did not emerge out of thin air. Instead, the bank’s economists highlighted a series of policy and investment tailwinds, which they believe will offset the adverse effects of rising prices and a cooling labor market.
According to Browning’s team, there are five key drivers behind this:
Fiscal and Tax Policies: Bank of America estimates that the so-called "Inflation Reduction Act" could boost GDP in fiscal year 2026 by approximately 0.3 to 0.4 percentage points by supporting household spending and encouraging corporate investment, while restored benefits from the Tax Cuts and Jobs Act will support capital expenditures.
AI-driven capital expenditure: The bank believes that AI investment has already contributed to economic growth and will “continue to grow at a steady pace in 2026,” spanning from data centers to chips and software, while emphasizing that concerns about an AI bubble are “exaggerated.”
Above all, the lagging effects of low interest rates will influence the mortgage market, corporate borrowing, and risk appetite.
Finally, a slight improvement in the trade environment and lower energy prices have also provided support to the markets, particularly benefiting emerging markets and import-dependent economies.
Other outlooks
Regarding the U.S. stock market, strategists at Bank of America predict that earnings per share for S&P 500 Index constituents will grow by approximately 14% in 2026, but the index itself is expected to rise by only 4% to 5%, with a year-end target of 7,100 points. This combination (strong earnings growth coupled with moderate index gains) suggests a well-functioning economy, but valuations are already sufficiently high, ruling out significant returns driven by substantial P/E ratio expansion.
The team also noted that the U.S. stock market may be undergoing a structural shift from being “consumer-driven” to “capital expenditure-driven,” with AI infrastructure development becoming a key driver of the new cycle.
Addressing widespread market concerns about an AI bubble, Bank of America pointed out that AI investment has already begun to make a tangible contribution to U.S. GDP and will continue to grow through 2026. Based on an analysis of historical bubble cycles, the U.S. technology sector remains within a relatively healthy valuation range, without signs of speculative overheating typical of bubble periods.
The bank emphasized that AI will remain one of the most critical growth drivers in the coming years.
On interest rates, Bank of America anticipates that the Federal Reserve will implement two rate cuts in 2026 (in June and July), with the 10-year U.S. Treasury yield projected to decline to between 4% and 4.25% by the end of 2026, carrying further downside risks. This implies borrowing conditions slightly looser than those in 2024-2025, though not reverting to the ultra-low-rate era that once fueled early booms in the U.S. real estate and stock markets.
Editor/Doris