Global Research Unlocked

A slow but steady hand on the cut button

The eventual impact of higher rates on credit, the rise of private capital, slow loan growth and forthcoming tighter regulations have all weighed on bank multiples to varying degrees. But these attractive multiples relative to history, combined with a view that rates probably have peaked, keep Ebrahim Poonawala constructive on the bank group. This is particularly true for money center banks ...

Strong demand and difficult supply

Over the last two decades, copper demand was inexorably linked to China. At times, China accounted for 110% of global copper demand growth. Now, countries are rebuilding their supply chains at home, building data centers and decarbonizing. While the source of copper demand has changed, demand growth remains compelling and strategist Michael Widmer is bullish on the metal while analyst Lawson Winde...

Millennial home buying continues but in some new places

New home sales are down only marginally from 2021 levels despite mortgage rates rising roughly 300bps over that period. Demand from Millennials entering peak home buying age, wealthy boomers and domestic migration have helped to offset affordability challenges created by higher rates. Existing home sales, however, have slowed to the lowest levels in roughly 30 years as homeown...

Big portion of retailers hoping for lower rates

Home improvement retail has been challenged by a number of factors of late, from pandemic pull-forward to weakness in existing home sales to inflation that's crowding out other spending. Lower rates would help and millennial home buying continues to provide some support for sales. Robby discusses the role home improvement stocks could play in the housing affordability challenges we fa...

AI: Hardware Today, Software Tomorrow

Corporate investments in AI have had significant impact on the financials of certain semiconductor and server companies, but while software providers stand to benefit from AI investments too, the technology hasn't yet shown up in the profits of these companies in a meaningful way. Alkesh Shah draws parallels between AI today and the Internet in 1995. Back then, investments were mainly in equipm...

Higher rates broadening the converts issuance market

Convertible bonds (CBs) can offer equity-like returns with downside protection thanks to the coupon and the ability to redeem most CBs at par. Thus far in 2024, CB issuance has been active, well ahead of levels seen the last few years. Michael discusses the reasons for such an active issuance year, including that Pandemic debt issuance, which was at record levels in the convert s...

Earnings improvement is still fairly nascent

In 2023, we saw an earnings recession, at least in the first half of the year, despite GDP growth that was ahead of trend. Back then, companies were adapting to higher rates, weaker demand and climbing costs, which weighed on earnings. Ohsung Kwon expects earnings growth to look much better in 2024. This year benefits from a lower 2023 earnings base on which to build as well as a number ...

Data trends are approaching Fed threshold for rate cuts

The latest economic data releases this year suggest the labor market remains strong but is cooling and the consumer is resilient in the face of sticky inflation, especially on the services side of the economy. Michael Gapen says the rebound in the labor force, labor participation and net migration played a crucial role in his revised US GDP (gross domestic product) estimates w...

Transports would ride the cycle but modes matter

Transport metrics had been in an extended downturn for around 18 months. Demand was depressed, inventory levels were high and end demand for goods had faded from COVID highs. But more recently there are signs of stabilization in some of the data tracked by BofA Global Research, partly because trucking supply has been removed. And some purchasing managers indices, or PMIs, have shown ...

A number of things can go right for Europe

Earlier this month, BofA Securities hosted a Global Investor Summit in Rome, Italy. In attendance were corporate executives, prominent investors, policy experts, members of BofA management and several BofA Global Research strategists. Topics ranged from private capital to understanding central banks to the future of Europe. Michael Hartnett suggests that while European markets have been d...

Global growth matters for Emerging Markets

At the start of the year, markets were pricing in three rate cuts by June and now, the likelihood of one cut by June is close to 50/50 based on market implied probabilities.  But while delayed rate cuts complicate the bull case for Emerging Markets (EM), David Hauner does point out that expectations for cuts have slid partly because of stronger economies, a positive for EM. Still, further ...

ESG topics still impacting stocks and there's more to come

US ESG funds faced a challenging 2023, seeing net outflows of around $7.1 billion, but strong markets meant that assets under management grew strongly. In the US, ESG regulations have historically been market driven, unlike the specific directives in the EU, but more recently the regulatory landscape in the US has seen a flurry of initiatives. For investors, there is state ...

Rate policy isn't the only big Fed change likely for '24

Since emerging from the COVID pandemic, the Fed has contracted the size of its balance sheet, also known as Quantitative Tightening (QT). They've done this by allowing their Treasury holdings to mature without reinvesting the proceeds. This has placed upward pressure on yields, all else equal. But the Fed is expected to slow this process later this year. Mark Cabana says this...

M&A activity should increase but not everywhere

M&A (Mergers & Acquisition) activity had fallen to well-below the 10Y average over the last 2 years. There are various reasons for this slowdown, including higher rates and negative corporate sentiment. But between equity markets faring well over the last year and interest rates off highs, there are some reasons to expect a recovery. Indeed, we've seen a bit of an uptick. ...

GLP-1 impact should be big but lots of puts and takes

Almost 40% of US adults are obese and the US healthcare system spends nearly $173 billion a year on obesity-related medical costs. In the past, exercise and diet regiments were the best solutions for combating obesity but now there's an injectable called a GLP-1. These drugs trigger receptors in the brain to suppress appetites, cravings and addictive behaviors. Pete Galbo explai...