Analysts at Bank of America said they remain constructive on the long-term performance of equities, pointing to better operational efficiency, healthier balance sheets, and what they describe as “a higher quality corporate sector than prior cycles.”
In a note published Monday, strategist Savita Subramanian told investors that the bank’s U.S. Regime Indicator “barely extended its Recovery (‘risk on’) phase,” suggesting the market is walking a fine line between mixed macro signals.
Four components of the indicator improved while four deteriorated, leaving overall sentiment subdued but with a constructive earnings outlook.
The report also underscored the importance of the “Corporate Misery Indicator,” a gauge that reflects shifts in demand, pricing power, and cost pressures. It “remained weak in 3Q as demand remains sluggish and wage inflation and pricing power are now neck and neck,” Subramanian wrote.
The strategist pointed to two key themes shaping market dynamics: the balance between AI-driven productivity and consumer strength, and the growing capital intensity of major technology firms.
“If AI drives efficiency, our quantitative work corroborates the bull case for the tools and the companies that use them,” the note stated, adding that efficient firms “recently delivered outsized returns of 8ppt in 3Q.”
At the same time, BofA cautioned that these gains “could come with waning demand for middle-income white collar jobs,” raising the risk of softer consumption.
On valuations, the bank observed that “MSFT, AMZN, GOOGL, META and now ORCL mostly trade near record multiples,” noting that their combined capital expenditures relative to operating cash flow are “equivalent to U.S. oil majors’.”