The influence of AI will remain strong in 2026
The keywords that undoubtedly run through this year are 'AI boom', 'global stock market strong rise', 'Federal Reserve interest rate cut', and 'trade uncertainty'. As 2025 comes to a close, Wall Street investment banks have begun to release their outlooks for the global economy and markets next year.
After the impressive performance of the U.S. and global markets in 2025, investors are eager to know how much more momentum this round of rising will have.
Bank of America Global Research recently predicted in a report that the global economy will enter 2026 with momentum exceeding investor expectations. The bank also expects stronger economic growth in the United States and China, continued investment driven by artificial intelligence (AI), and a rotation of market leaders.
"Although market worries have not dissipated, our team remains optimistic about the economy and artificial intelligence," said Candace Browning, head of Bank of America's global research department.
She pointed out that concerns about an impending AI bubble burst are "overblown," and predicts that GDP growth rates for the U.S. and China will exceed market consensus expectations in 2026.
Bank of America's top ten heavyweight predictions for 2026.
1. U.S. GDP growth will exceed market consensus expectations.
Bank of America's outlook for U.S. economic growth in 2026 is more optimistic than the overall market expectation.
Bank of America senior economist Aditya Bhave forecasts that the annualized GDP growth rate in the U.S. will reach 2.4% next year. Contributing factors include fiscal support from the Inflation Reduction Act, the recovery of incentives from the Tax Cuts and Jobs Act, more favorable trade policies, a rebound in corporate investment, and the lagging effects of the Federal Reserve's interest rate cuts.
In Bank of America's view, the current macroeconomic fundamentals are not as weak as many investors believe.
2. The AI boom will continue, and the bubble theory is unfounded.
Bank of America believes that the AI investment cycle will continue to expand rather than collapse. AI-related capital expenditures, such as investments in data centers, chips, and automation, have already driven GDP growth, and this momentum (8.930, -0.19, -2.08%) will remain strong in 2026.
Strategists noted that capital expenditures surrounding data centers, semiconductor capacity, and automation technology will remain robust, not only enhancing productivity but also supporting corporate profitability.
As of now, the iShares Semiconductor ETF has risen over 40% this year; since OpenAI launched ChatGPT in November 2022, this ETF has surged a cumulative 450%.
3. The macro environment is improving, and emerging markets will benefit.
Due to the weakening dollar, declining U.S. interest rates, and falling oil prices, the performance of emerging markets is expected to improve.
Bank of America emerging market strategist David Hauner notes that this series of favorable factors will alleviate financing pressures in emerging markets and drive more capital into developing economies in 2026.
So far this year, the iShares MSCI Emerging Markets ETF has risen by 30%, outperforming the popular Vanguard S&P 500 ETF.
4. China's economic growth outlook is improving.
Bank of America has raised its growth forecast for the Chinese economy. The bank's chief economist, Helen Qiao, also stated that with recent trade negotiations signaling positive outcomes and various stimulus measures gradually taking effect, there is room for upward adjustments in forecasts.
5. S&P 500 earnings are strong, but stock price gains are limited.
Bank of America stock analyst Savita Subramanian forecasts that the earnings per share (EPS) of S&P 500 constituent companies will grow by 14% in 2026, but she believes that the index's upside potential is limited to 4% to 5%, setting a target level at 7100 points.
She believes that the market is transitioning from a previously consumer-driven cycle to a new cycle led by capital expenditure, particularly in technology and infrastructure investments.
6. U.S. Treasury yields may decline more than expected.
Investors may have overestimated how long U.S. Treasury yields will remain elevated. While most expect 10-year U.S. Treasury yields to be between 4% and 4.5% by the end of 2026, Bank of America rate strategist Mark Cabana predicts the yield will be between 4% and 4.25%.
He predicts that the Federal Reserve will implement interest rate cuts in December 2025 and in June and July 2026, which will exert sustained downward pressure on U.S. Treasury yields.
7. U.S. housing prices will remain stable, but there is upside risk.
The Bank of America securitized products team, led by Chris Flanagan, forecasts that U.S. national housing prices will remain flat in 2026, but housing transaction volumes will rebound. Regional differences in housing prices may widen, depending on local housing supply conditions and residents' purchasing power.
With the Federal Reserve's interest rate cuts leading to lower mortgage rates, the risk of U.S. housing prices seems to tilt slightly upward.
8. As the impact of AI becomes clearer, market volatility will increase.
Bank of America predicts that as investors gain a clearer understanding of how AI will reshape economic fundamentals, market volatility will rise in 2026.
The market's reassessment of AI's impact on GDP potential, inflation trends, and corporate capital expenditure cycles may trigger significant price volatility across various asset classes.
Bank of America also pointed out that U.S. fiscal policy and the K-shaped recovery will be additional factors contributing to market turbulence.
9. Private credit returns will decline.
After a strong performance in 2025, private credit returns may decline. Bank of America strategist Neha Khoda predicts that total returns on private credit will decrease from about 9% this year to approximately 5.4% in 2026.
This shift may prompt investors to focus on high-yield bonds or other income-generating assets that offer higher relative value.
10. Copper is expected to have another strong year.
Despite having risen 35% so far this year, copper prices are expected to rise further in 2026. Although construction and manufacturing activities have been weak this year, ongoing supply-side tensions have supported copper prices.
Bank of America metals strategist Michael Widmer predicts that the copper supply shortage will continue, and with policy easing and a rebound in global demand, copper prices will receive further support.
This article is collaboratively reprinted from: (Deep Tide TechFlow).
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