While many on Wall Street remain cautious, bracing for stagflation or a sluggish rebound, Bank of America is striking a far more optimistic tone—one that suggests the U.S. economy may be on the cusp of something much bigger than a standard recovery.
In a recent research note, BofA analysts argue that investors may be overlooking a significant “tail risk”—not a downturn, but an unexpected economic surge.
“Today a confluence of factors argue that the key tail risk that may not be priced in is not just a cyclical recovery, but a boom,” the analysts wrote.
5 forces behind a potential boom
The bank laid out five major reasons for its bullish outlook.
1. Political momentum. With U.S. midterm elections approaching, policymakers are incentivized to push short-term, pro-growth policies that could fuel economic activity.
2. Domestic legislation. Washington’s sweeping “One Big Beautiful Bill Act” (OBBBA) is focused on revitalizing domestic manufacturing, signaling significant fiscal support.
3. Global stimulus. Major international economies are also stepping on the gas. Germany has rolled out the largest stimulus package in EU history, and other countries are contributing to what BofA calls a growing global reflation effort.
4. Capital investment boom. Tech giants like Amazon, Meta, Microsoft, and Alphabet are on track to collectively spend nearly $700 billion in capital expenditures between 2025 and 2026. On top of that, international firms are expanding U.S. manufacturing, and municipalities are investing in aging infrastructure upgrades.
5. BofA’s “Regime Indicator.” This proprietary model, which tracks corporate earnings revisions, GDP estimates, and other macro signals, is nearing a critical threshold—from “Downturn” to “Recovery.” Historically, that shift often precedes a surge in value stocks.
Despite the current cautious consensus, the BofA team, led by strategist Savita Subramanian, believes market sentiment could turn quickly. In June, 70% of fund managers still expected stagflation, while just 10% saw a high-growth “boom” on the horizon. But if the Regime Indicator flips to “Recovery” in early August, history suggests a swift market rotation could follow.
Can spending keep up?
Much of the fuel for BofA’s bullish thesis comes down to fiscal firepower—and countries around the world are already deploying it.
In March, China announced a plan to issue 1.3 trillion yuan ($179 billion) in special treasury bonds, in addition to 4.4 trillion yuan in local government bonds.
The European Union continues to pump money through its NextGenerationEU package, with as much as €806.9 billion (approximately $880 billion) available through 2026. Major EU members are also layering on their own fiscal efforts.
Elsewhere, Japan, South Korea, Canada, and Australia have rolled out targeted stimulus programs aimed at specific sectors, energy resilience, and boosting household purchasing power. Much of this is focused on green energy, industrial transformation, and consumer relief.
In the U.S., American firms have pledged billions toward infrastructure, technology, and domestic manufacturing since President Trump took office. Many of those commitments were made prior to the OBBBA’s passage.
However, a key question remains: will these investments come online fast enough to fuel the boom BofA envisions?
Some projects may face delays. For instance, OpenAI’s ambitious $500 billion Stargate initiative is reportedly struggling to secure the necessary funding, casting doubt on whether it can meet its initial targets.
