Bank of America’s research investment committee suggests a strategic approach for investors: focus on US equities for growth opportunities, while looking to global markets for value. Jared Woodard, head of the committee, also advises investors to maintain their current positions in artificial intelligence (AI) related assets. The committee anticipates a favourable investment landscape in 2025-26, driven by expectations of three Federal Reserve interest rate cuts, a weaker US dollar, and sustained high demand for AI assets.
Woodard noted the significant gains of the ‘Magnificent Seven’ megacap tech stocks, which surged 262 per cent from the launch of ChatGPT in 2022 to the end of the September quarter, equating to a 57 per cent annualised increase. However, the fourth quarter saw a more modest gain of just 4 per cent. He observed a growing scepticism towards AI among institutional investors, contrasting with the continued enthusiasm among private clients. Bank of America provides a range of financial services to individuals, companies, and institutions, including banking, investment management, and wealth management.
To mitigate AI-related risks, Woodard suggests that investors deploying new capital consider diversifying beyond AI, exploring global equity factors that exhibit lower correlations to US growth but still offer attractive returns. The committee highlighted the potential for global stocks to outperform US equities significantly this year, projecting a difference of more than 15 percentage points, which would be the most substantial outperformance in three decades.
The US Equity Strategy team’s long-term valuation model indicates a potential annualised real return for the S&P 500 of -0.1 per cent over the next ten years at current prices, reinforcing the recommendation to consider global equities for potentially better value.
