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October 2, 2020

More than a trend? Why stakeholder capitalism may have staying power

The opinions are those of the author(s) and subject to change.
Companies once judged mainly on profits are increasingly being challenged to show that their operations can help elevate society in addition to share price. It's an economic shift towards "stakeholder capitalism," encouraging companies to consider how they can potentially benefit all of their stakeholders — employees, customers and the communities they serve — in addition to their shareholders.
"Capitalism and free markets have brought significant economic benefits to the world, but often with unequal consequences," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "Stakeholder capitalism addresses that imbalance," adds Hyzy, co-author of a new report from the Chief Investment Office (CIO), The Great Shift: Shareholder to Stakeholder Capitalism.
Companies that embrace more climate-friendly business models and operations have the potential to position themselves for sustained growth over the long term.
— Jonathan Kozy,
Senior Macro Strategy Analyst in the Chief
Investment Office for Merrill and Bank of America Private Bank
This shift can go hand in hand with the rising popularity of sustainable and impact investing — seeking benefits for society in addition to financial returns — and the development of more consistent ways to measure companies' environmental, social and governance (ESG) performance. On September 22, the World Economic Forum's International Business Council, chaired by Bank of America Chairman and CEO Brian Moynihan, released standardized "Stakeholder Capitalism Metrics" (SCM). Developed in partnership with the Big Four accounting firms — Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and Klynveld Peat Marwick Goerdeler (KPMG) — the SCMs look beyond traditional financial results at how companies treat their workers, affect the environment and impact the communities where they operate. With this consistent, comparable and measurable information, capital can then be directed towards companies whose goal it is to effectively deliver across stakeholders.

Can sustainable companies also be stronger companies?

"Qualities previously seen as 'nonfinancial' are increasingly recognized as critically important to financial areas such as revenue growth, operating margins and cost of capital," says Jackie VanderBrug, Head of Sustainable & Impact Investment Strategy for the CIO. VanderBrug co-authored "The Great Shift" with Hyzy and Jonathan Kozy, Senior Macro Strategy Analyst for the CIO.
"Companies that embrace more climate-friendly business models and operations have the potential to position themselves for sustained growth over the long term," Kozy says. "We believe the shift to stakeholder capitalism has staying power." As such, investors who recognize this great shift may stand to benefit as well. "Portfolios in the coming years could allocate more capital to assets backed or underpinned by high sustainability, in our view," Kozy says.

Investment strategies to consider

While companies in any industry can take steps to become more sustainable, specific industries may offer special opportunities, VanderBrug notes. "We see potential opportunities in renewable energies, electrical vehicles, next-generation batteries, clean technology, energy-efficient electronics and building systems, and clean water and sanitation." Another promising area is infrastructure, especially technology infrastructure.
We see potential opportunities in renewable energies, electrical vehicles, next-generation batteries, clean technology, energy-efficient electronics and building systems, and clean water and sanitation.
— Jackie VanderBrug,
Head of Sustainable & Impact Investment Strategy in
the Chief Investment Office for Merrill and Bank of America Private Bank
As important as ESG considerations may be, Hyzy stresses the importance of making investment decisions within the context of your overall financial goals and broad market trends. "We currently prefer stocks over bonds and large, U.S.-based companies," he says.
For a closer look at how ESG concerns are altering the landscape for businesses and investors, read The Great Shift: Shareholder to Stakeholder Capitalism.
Information is as of 10/02/2020.

Opinions are those of the author(s), as of the date of this document and are subject to change.

Investing involves risk including the possible loss of principal.

Past performance is no guarantee of future results.


The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Bonds are subject to interest rate, inflation and credit risks.

Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.

Investments focused in a certain industry may pose additional risks due to lack of diversification, industry volatility, economic turmoil, susceptibility to economic, political or regulatory risks and other sector concentration risks.
September 21, 2020

The great rebalancing act: Portfolio strategies for a post-pandemic economy

The opinions are those of the author(s) and subject to change.
As the pandemic reshapes everything from work and play to the U.S. industrial landscape, people will also need to rethink how they build and maintain their investment portfolios, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "The post-pandemic period will create new opportunities and risks," he notes. "We believe investors will need a higher level of diversification, more frequent portfolio rebalancing and exposure to newly developing themes."
"The Great Rebalance," a new report from the Chief Investment Office (CIO), highlights several key factors that may cause investors to begin to think differently about the markets and their investments. For one, there's the current high level of government debt. Realizing how critical stimulus for families and businesses is to the economy, many investors may become less skittish about it. As low interest rates continue to suppress bond yields, they are likely to gravitate to high-quality U.S. stocks. "And with a greater focus on managing risks as periodic volatility continues, some may favor active rather than passive management for their investments," says Niladri Mukherjee, head of CIO Portfolio Strategy, Chief Investment Office, Merrill and Bank of America Private Bank.
Hyzy and Mukherjee, co-authors of "The Great Rebalance," offer the following ideas for managing your portfolio, moving forward. For more ideas and insights, read the full report, "The Great Rebalance (PDF)."
We believe investors will need a higher level of diversification, more frequent portfolio rebalancing and exposure to newly developing themes.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank

First, review your investments more frequently

Economic recovery from the pandemic is already underway, Hyzy notes, but full recovery will take a while and is likely to include periodic setbacks and volatility. "Investors should review their portfolios more frequently to make sure their strategic allocations haven't inadvertently shifted and rebalance where necessary," he says. Rebalancing may also include capitalizing on new investment opportunities as they emerge.

Keep step with a changing world

"The pandemic has accelerated a number of major investment themes that were already underway," Mukherjee says. De-globalization, for example, means that more companies are moving their supply chains closer to home — with a potential boost for industries such as robotics, automation and 3-D printing. Remote work and social distancing are creating potential investment opportunities in e-commerce, e-health and virtual reality. Other promising themes range from the rise of smart cities to tech infrastructure and cybersecurity.

Consider precious metals — and other ways to diversify more broadly

Amid low interest rates, a weaker dollar and a rise in economic uncertainties, investors increasingly are turning to precious metals. "For those who would like to hedge against uncertainty, a small allocation to gold could make sense," Hyzy says. But keep in mind that high-quality stocks and bonds also help during market volatility, so be sure any investment in metals works in concert with your overall portfolio, he advises. "Over the long term, tangible assets such as real estate timber, and farm and ranch land may also help diversify a portfolio."
This environment can lead investors to take too much risk at market peaks — or to avoid taking any risks and thus miss opportunities.
— Niladri Mukherjee,
head of CIO Portfolio Strategy, Chief Investment Office,
Merrill and Bank of America Private Bank

Most important, take a disciplined approach

"Markets today are more fragile than in the past, and they move from relative calm to stress at much higher speeds," Mukherjee says. "This environment can lead investors to take too much risk at market peaks — or to avoid taking any risks and thus miss opportunities." Such conditions call for investors to establish long-term goals, invest carefully to help achieve them, analyze risks and stick to their strategies even when volatility rises.
For more insights from the CIO on volatility and the markets, tune in to the latest Merrill CIO Audiocast.
Information is as of 09/21/2020.

Opinions are those of the author(s), as of the date of this document and are subject to change.

Investing involves risk, including the possible loss of principal.

Past performance is no guarantee of future results.

Precious metals are considered alternative investments and can provide diversification benefits not obtained from more traditional investments, but should be carefully considered based on your investment objectives, risk tolerance and net worth. Alternative investments are often long-term, illiquid investments that are not easily valued. Note that not all assets that could be considered alternative investments are necessarily reflected in the alternative investment allocation.


The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Investments focused in a certain industry may pose additional risks due to lack of diversification, industry volatility, economic turmoil, susceptibility to economic, political or regulatory risks and other sector concentration risks.

Nonfinancial assets, such as closely-held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations, and lack of liquidity. Nonfinancial assets are not appropriate for all investors.
September 8, 2020

The latest market correction: Growing pains for a new bull market?

The opinions are those of the author(s) and subject to change.
After months of steady gains, the Dow Jones Industrial Average dropped by more than 800 points last Thursday.Footnote 1 Technology stocks, which had helped propel the markets to new heights, saw some of the biggest declines.
Yet while volatility could persist in the short term, "investors should not assume the onset of a new bear market," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "In fact, we view the correction as a much-needed and even healthy development in the early stages of an extended bull market."
We view the correction as a much-needed and even healthy development in the early stages of an extended bull market.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank

Here's our take on what this may mean.

The correction didn't come in response to any major headline, catalyst or policy-induced concern, Hyzy points out. Rather, the selling likely represents an "exhale" by investors worried that markets could lose momentum after the strongest month of August in about 30 years, according to the Chief Investment Office (CIO). "Today, these exhales are much quicker and sharper, given the size and high impact of machine-led algorithms and model-driven trading programs," Hyzy explains.
Despite the challenges of an ongoing pandemic marked by business disruptions and job losses, Hyzy believes the fundamentals for recovery remain strong. He points in particular to a healthy housing market, as well as technology and health care companies (current volatility notwithstanding) that could likely continue to benefit from strong demand. Hyzy expects the markets to begin to stabilize in the coming week. Looking ahead, he believes, momentum could resume through year end, driven in part by current better than expected corporate profits.

What can investors consider doing right now?

"The best guidance is to stay the course," Hyzy believes. In other words, avoid abandoning stocks, even if short-term drops feel unsettling. While bonds remain an important part of a portfolio, stocks continue to offer the best opportunity for long-term growth, he believes. Investors should focus on diversifying their holdings and rebalancing regularly after periods of volatility.
For a deeper dive on current market conditions, read the CIO's latest CIO Capital Market Outlook (PDF) and tune in to the latest Merrill CIO Audiocast.
1 "Dow Ends More Than 800 Points Lower As Tech Plunge Gives Stocks Worst Day Since June," MarketWatch, Sept. 3, 2020

Information is as of 09/08/2020.

Opinions are those of the author(s), as of the date of this document and are subject to change.

Investing involves risk, including the possible loss of principal.

Past performance is no guarantee of future results.


The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Bonds are subject to interest rate, inflation and credit risks.

Investments focused in a certain industry may pose additional risks due to lack of diversification, industry volatility, economic turmoil, susceptibility to economic, political or regulatory risks and other sector concentration risks.
August 28, 2020

Dramatic shifts in the way we live are reshaping the markets

The opinions are those of the author(s) and subject to change.
In a few short months, the coronavirus has made working from home so familiar that "many employees are wondering if they'll ever work from work again," says Lauren J. Sanfilippo, Vice President and Market Strategy Analyst for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank.
The shift to working from home is just one of many dramatic changes in consumer behavior highlighted in a new report from the CIO: "The Great Reset: Work, Play and Live in a Post-Coronavirus World (PDF)."
The paper, co-authored by Sanfilippo and CIO investment analysts Kirsten Cabacungan and Muhammad A. Wainwright, anticipates an economic recovery in late 2020 and into 2021, driven in part by a wave of home-buying by a more digital workforce.
"Changes in the way we live, work and play will affect different sectors in varying ways, with some coming out ahead and others potentially losing ground," notes Sanfilippo. Here's a quick look at how those changes could impact your investment decisions.
Changes in the way we live, work and play will affect different sectors in varying ways, with some coming out ahead and others potentially losing ground.
— Lauren J. Sanfilippo,
Vice President and Market Strategy Analyst for the Chief Investment Office,
Merrill and Bank of America Private Bank

Rethinking how we work

Nearly a third (31%) of workers employed in early March went remote by early April, according to the National Bureau of Economic ResearchFootnote 1, and an IBM studyFootnote 2 found that 75% of adults would prefer to continue to work remotely at least some of the time after the pandemic retreats. Moving forward, as the unemployment situation slowly begins to improve, remote jobs are likely to be higher skilled, higher paid positions, Sanfilippo says. "This in turn should support a stronger future consumer."
While workers in vulnerable industries such as travel, leisure, and brick and mortar retailers will likely need retraining, "areas such as manufacturing, housing, technology and health care are leading the early stages of an employment recovery," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.
In the new remote workplace, businesses in areas ranging from teleconferencing, communications services and cybersecurity to tech hardware and casual clothing should benefit. Transportation companies and small businesses that support commuters or that produce business clothing are likely to struggle, Sanfilippo adds.
Areas such as manufacturing, housing, technology and health care are leading the early stages of an employment recovery.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank

Reimagining how we live and play

Fueled by low interest rates and a focus on social distancing, home-buying among a key demographic group, 35 to 44 year olds, is expected to return to growth for the first time in 14 years.Footnote 3 BofA Global Research estimates that the housing industry should reach pre-coronavirus levels by late 2021.
In terms of entertainment, streamed on-demand programming should continue to benefit, while theme parks and theaters struggle. Meanwhile, auto sales, including electric vehicles, should get a boost as "cooped-up" Americans seek travel options that offer a degree of separation.

What it all may mean for your investments

Despite the challenges, "what remains clear is that consumers are on the path to rebuilding and should prove their resiliency along the way," Hyzy says. "We currently favor stocks over bonds overall," he adds, with a preference for large U.S. companies and disruptive innovation companies. Yet bonds remain an important way to balance a portfolio, he adds, and the uneven nature of the recovery places added emphasis on a diversified portfolio.
For more on what's ahead for the markets and the economy, and how to prepare, listen to the latest Merrill CIO Audiocast.
1 Brynjolfsson, Erik, et al. "COVID-19 and Remote Work: An Early Look at U.S. Data." National Bureau of Economic Research. June 2020

2 IBM, "COVID-19 is Significantly Altering U.S. Consumer Behavior and Plans Post-Crisis", May 1, 2020

3 Census Bureau, BofA Global Research, Data as of June 2020.

Information is as of 08/28/2020 and subject to change.

Opinions are those of the author(s) and are subject to change.

Investing involves risk, including the possible loss of principal.

Past performance is no guarantee of future results.


The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Bonds are subject to interest rate, inflation and credit risks.

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.

Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets.
August 14, 2020

The U.S. and China — Hot rivalry or cold war?

The opinions are those of the author(s) and subject to change.
Amid rising tariffs and an increasingly furious race for technological supremacy, "economic frictions between the U.S. and China have reached a boiling point," says Ehiwario Efeyini, Director and Senior Market Strategy Analyst, Chief Investment Office (CIO), Merrill and Bank of America Private Bank.
The coronavirus has only aggravated trade tensions that have been building for years, according to a new report from the CIO, "The Great Rivalry: A New U.S.-China Cold War?", co-authored by Efeyini and investment strategist Rodrigo Serrano, Chief Investment Office, Merrill and Bank of America Private Bank. As a recent example, U.S. officials on August 6 announced restrictions on two Chinese-owned social media platforms that they believe could potentially be used to gather information on American citizens.Footnote 1

Where the rivalry stands right now

"The U.S. remains the world's largest economy and still holds the advantage in several key areas, such as semiconductor chip design, controlling 45% of the global market compared with China's 5%.Footnote 2 But China, which a decade ago passed the United States as the world's top manufacturing country, holds the lead in categories ranging from electric vehicles to the number of biotechnology research papers produced each year.
China's astonishing rise has lifted more than 800 million people out of poverty and made the country a major player on the world's economic stage, with investments in development across Eurasia, Africa and the Middle East, according to "The Great Rivalry" report. Yet U.S. officials charge that Chinese companies have benefited unfairly from government subsidies and low-cost loans from state-controlled banks, and that the country has flouted international trade rules and failed to make necessary political changes. "Ideological differences persist on a range of questions from data security to online censorship, domestic surveillance and the status of Hong Kong," Efeyini says.
Ideological differences persist on a range of questions from data security to online censorship, domestic surveillance and the status of Hong Kong.
— Ehiwario Efeyini,
Director and Senior Market Strategy Analyst, Chief Investment Office,
Merrill and Bank of America Private Bank
Yet, in contrast to the U.S.-Soviet cold war that dominated global geopolitics in the late 20th century, "China and the U.S. today have high levels of interdependence on trade, investments and financial markets," Efeyini adds. Thus, while the rivalry is likely to intensify over the next decade, with more U.S. companies pulling back from ties with Chinese suppliers in favor of supply chains closer to home, an all-out cold war would involve a complex "decoupling" process that would be costly for both countries.

Opportunities to consider amid the tensions

"While the intensifying rivalry between the world's two largest economies poses risks of greater market volatility during the 2020s, it also represents potential investment opportunities," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.
While the intensifying rivalry between the world's two largest economies poses risks of greater market volatility, it also represents potential investment opportunities.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank
"Prolonged competition for technological leadership is likely to involve greater levels of government support for investment in research and innovation," he adds. "For investors, this should mean long-term growth opportunities across biotechnology and life sciences, vehicles and battery technology, as well as hardware applications for semiconductors, such as telecommunications equipment, consumer electronics, cloud servers and industrial robots." An intensified rivalry may also mean greater research and spending in the defense sector.
For more insights on the markets and the economy, tune in to the latest Merrill CIO Audiocast.
1 "Trump Targets WeChat and TikTok, in Sharp Escalation With China," The New York Times, August 6, 2020.

2 Semiconductor Industry Association; International Energy Agency; The TOP500 Project; Scopus database. Data as of 2019.

Information is as of 08/14/2020 and subject to change.

Opinions are those of the author(s), as of the date of this document, and are subject to change.

Investing involves risk, including the possible loss of principal.

Past performance is no guarantee of future results.


The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation ("BofA Corp.").

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.
August 4, 2020

Big companies are likely to get bigger — what could that mean for your portfolio?

The opinions are those of the author(s) and subject to change.
The top U.S. technology companies do more than dominate their industry. Many started out of garages and dorm rooms, and now represent nearly a quarter of the total S&P 500 market capitalization.Footnote 1
That's not just an anomaly of the fast-growing tech sector. Industry after industry is consolidating in the hands of its biggest players, says Kathryn C. McDonald, Vice President and Market Strategy Analyst, Chief Investment Office (CIO), Merrill and Bank of America Private Bank. "Market concentration has risen in 75% of U.S. industries over the past 20 years." And, McDonald adds, the coronavirus pandemic is accelerating that trend by separating the weak from the strong.
Market concentration has risen in 75% of U.S. industries over the past
20 years.
— Kathryn C. McDonald,
Vice President and Market Strategy Analyst
in the Chief Investment Office for Merrill and Bank of America Private Bank

Consolidation during crisis

"Big companies are likely to get bigger and gain market share from smaller competitors" as a result of the pandemic, notes McDonald. Already, the top four U.S. airlines control 80% of the market, three companies process two-thirds of U.S. beef, and health care has averaged 70 hospital mergers per year since 2010, according to a new CIO report, "The Great Consolidation: Industry and Equity Market Concentration After the Crisis," co-authored by McDonald and Nick Giorgi, a vice president and investment strategist, Chief Investment Office, Merrill and Bank of America Private Bank.
The pandemic could lead to new mergers and acquisitions, as well as bankruptcies of struggling firms. "Meanwhile, industry leaders with stronger balance sheets are likely to be more resilient," McDonald says. And consumers may be more loyal to major brands that they know and trust.

What this trend could mean for investors

Though smaller companies and innovative startups continually refresh the landscape, consolidation offers investors the opportunity to potentially benefit from strong performance by larger, more established companies. "Sectors with rising concentration have tended to enjoy better stock performance in recent decades."Footnote 2 says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "We favor high-quality names with strong balance sheets, valuable intangible assets and strong cash flow."
Investors may find long-term potential opportunities in financial services, consumer goods, industrials, healthcare, technology, energy and other industries whose largest firms are investing in growth even during the recession, Hyzy says. However, he cautions, that doesn't mean you should abandon stocks of smaller companies. "While we prefer large-cap stocks at this point in time, we recommend a diversified allocation across the spectrum."
While we prefer large-cap stocks at this point in time, we recommend a diversified allocation across the spectrum.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank

Minding the risks

Hyzy offers this useful reminder: Size can come with risk. Take big tech – its growing influence in the global economy may be skewing wealth and market share toward a handful of companies. That possibility has prompted some regulatory risk for some of the most visible tech industry leaders, with lawmakers potentially introducing legislation that could limit or reverse the companies' concentration of power. Companies that use their size and influence to benefit society as well as the bottom line could stand to benefit, while those that, for instance, ignore or de-emphasize environmental, social and governance (ESG) issues could potentially be at greater risk.
1 Source: Bloomberg, data as of July 2020"

2 Grullon, G., Larkin, Y., and Michaely, R. "Are U.S. Industries Becoming More Concentrated?" Oxford Review of Finance, April 2019.

Information is as of 08/04/2020.

Opinions are those of the authors and are subject to change.

Investing involves risk, including the possible loss of principal.

Past performance is no guarantee of future results.


Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Stocks of small- and mid-cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies.

Investing in growth stocks incurs the possibility of losses because their prices are sensitive to changes in current or expected earnings. Value stocks are securities of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor. If the manager's assessment of a company's prospects is wrong, the price of its stock may not approach the value the manager has placed on it.

Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets.

Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
July 24, 2020

Growth or value stocks? Why the answer today may be 'both'

The opinions are those of the author(s) and subject to change.
Stock investors positioning their portfolios for economic recovery have given fresh urgency to an age-old debate: growth or value?
Growth investors seek stocks or mutual funds of companies offering the potential for strong earnings growth. Though there are no guarantees, growth investors can be willing to pay a higher-than-average price for these stocks in hopes that the prices will rise still higher, despite their greater tendency to be affected by market swings.
Value investors, on the other hand, look for companies whose prices may have fallen, but that still have strong fundamentals. They're looking to capitalize when and if those companies regain their lost value. These stocks, generally of well established companies with proven histories of financial performance, also often can offer dividends.
As people and investors, we like to put things in boxes. But today's marketplace represents a confluence of growth and value.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank
But in today's market, the distinctions between growth and value are blurring, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Choosing one at the expense of the other could be a mistake. "As people and investors, we like to put things in boxes. But today's marketplace represents a confluence of growth and value."
As technology redefines entire industries and sectors once considered value-oriented adjust to new realities, potential opportunities for growth exist more broadly, Hyzy says. As an example, he points to the industrial sector, once viewed as too stodgy for growth investors. "Industrials are now seen as a growth area, thanks to innovation and disruptive technologies." Similarly, the consumer sector, which used to be known primarily for cyclical growth, currently has more resilience. And the major tech companies, no longer the new kids on the block, now could be more likely to offer dividends.
"When lines get blurry, you need to have a diversified mixture," Hyzy says. What's more, both growth and value have their place in an economy seeking to recover from the ongoing effects of the coronavirus. Growth stocks tend to do well when interest rates are low and corporate earnings are rising. Value stocks tend to perform well early in an economic recovery, though the benefits may diminish in a prolonged bull market.
The most important thing, Hyzy says, is to consider all of your goals and timelines and build your strategies around them.
For more on where the markets and the economy may be headed, read "Midyear Outlook: Getting to the 'New Normal'" and tune in to the latest Merrill CIO Audiocast.
Information is as of 07/24/20.

Opinions are those of the authors and are subject to change.

Investing involves risk, including the possible loss of principal.

Past performance is no guarantee of future results.


Companies may reduce or eliminate dividend payment to shareholders. Historically, dividends make up a large percentage of stocks' total return.

Investing in growth stocks incurs the possibility of losses because their prices are sensitive to changes in current or expected earnings. Value stocks are securities of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor. If the manager's assessment of a company's prospects is wrong, the price of its stock may not approach the value the manager has placed on it.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
July 17, 2020

Forecast: Second-quarter earnings & other headwinds may test the markets

The opinions are those of the author(s) and subject to change.
With second-quarter earnings kicking off this week, investors may begin to see some renewed volatility in the markets, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. After several months of remarkable recovery, investment markets could face periodic challenges throughout much of the rest of 2020, he adds.
"We're in stage four of an eight-stage investment cycle that started with the onset of the global pandemic," Hyzy says. "While the latter stages of this investment cycle should lead to a new era of innovation and expansion, this current stage is defined by headwinds." Headwinds include low second-quarter corporate earnings, nervousness over the November elections and fallout from the regional new outbreaks of the coronavirus across the southern United States.
While the latter stages of this investment cycle should lead to a new era of innovation and expansion, this current stage is defined by headwinds.
— Chris Hyzy,
Chief Investment Officer,
Merrill and Bank of America Private Bank
For investors, the best course is to take a long-term view, avoid overreacting to periodic volatility and consider strategic investments, where appropriate, to prepare for a new economy ahead, Hyzy believes. Though the precise timing will depend on a number of factors, including progression of the disease, here's how the eight steps of the investment cycle may play out.

Where we've been

Stage 1 (March to mid-April): Impacted by the pandemic, business closings and job loss, equity markets plunge 30-40% from February. Massive government stimulus helps bring stability.
Stage 2 (Late April and May): Markets respond favorably as economic support for families and businesses creates a "bridge" to potential recovery.
Stage 3 (June): Many countries, regions and businesses begin to reopen, creating a series of sharp but narrow "V-shaped recoveries."

Where we are now

Stage 4 (July through late 2020): As second-quarter corporate earnings are unveiled, they likely will reflect deep shocks from the pandemic, raising concerns about earnings for the rest of the year, Hyzy says. A contentious presidential election and new outbreaks of the coronavirus create challenges for the economy and markets, with the potential for periodic volatility.

Where we may be headed

Stage 5 (Late 2020 or start of 2021): "We think market expansion will resume, with some surprising areas of corporate profits as companies get better at managing their operating expenses," Hyzy says. "But much depends on the levels of consumer confidence."
Stage 6 (Early 2021): "We believe the markets will start pricing in that global expansion in Stage 6," Hyzy says. "The growth engines will be the U.S. housing cycle and Germany and the rest of Europe supporting expansion rather than austerity."
Stage 7 (Mid-2021): Depending on the election outcome, new government policies could create market challenges, Hyzy believes. The election outcome could also have implications for U.S.-China relations. And unemployment, though likely to be improved, may stall temporarily at about 6%.
Stage 8 (Late 2021): "The final stage of this early expansionary period is a pricing in of the new normal — including a longer term profit cycle," Hyzy says. "That's where new industries are born, innovation adds to productivity and the unemployment rate heads back towards levels we saw pre-pandemic."
For more insights on the markets and the economy, tune in to the latest Merrill CIO Audiocast.
Information is as of 07/17/2020 and subject to change.

Opinions are those of the author(s), as of the date of this document, and are subject to change.

Investing involves risk including possible loss of principal.

Past performance is no guarantee of future results.

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.
July 10, 2020

Understanding reflation — and why it matters

The opinions are those of the author(s) and subject to change.
With the economy struggling to recover amid an ongoing pandemic, the Federal Reserve (Fed) has committed to a steady process of "reflation" — stimulus aimed at returning a weakened economy back toward normal, healthy levels of growth and inflation. While such tactics are nothing new, "the current reflationary process may be the strongest we've seen in decades," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. That could mean opportunities on several fronts for patient, strategic investors, Hyzy says.
The current reflationary process may be the strongest we've seen in decades.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank
"The Reflation Triangle," a new report from the Chief Investment Office, points to three reasons for optimism that we're entering a period of extended, controlled growth. First is the trillions of dollars of stimulus and liquidity the Fed, Congress and governments worldwide have unleashed to help markets, consumers and businesses. Second is a weakening dollar — good news for U.S. exports and a sign of renewed global economic confidence. Finally, a steepening yield curve — with interest rates for long-term bonds rising faster than for short-term bonds — may signal increasing market confidence in the economic recovery.

What it could mean for investors?

Investors remain nervous about reentering the markets, especially for stocks, Hyzy says. "We're still seeing higher flows into bonds than stocks because the 'wall of worry' is still high." Yet investors may want to consider adding stocks and other assets with higher growth potential and greater risk as part of a well-diversified portfolio, he adds. Some investors may want to consider tangible assets such as real estate, timber or farm or ranch land. "These could generate cash flow while providing a hedge against possible future inflation," he says.
It's important to recognize risks that could still derail a recovery and set back the reflation process. Top among these would be a major "second wave" of the pandemic. At the same time, he adds, "it's important to plan for what appears to be the early stages of a long-term global expansion."
For more insights on the markets and the economy, tune in to the latest Merrill CIO Audiocast.
Information is as of 07/10/20.

Opinions are those of the authors and are subject to change.

Investing involves risk, including the possible loss of principal.

Past performance is no guarantee of future results.


The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation.
Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Bonds are subject to interest rate, inflation and credit risks.

Nonfinancial assets, such as closely-held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations, and lack of liquidity. Nonfinancial assets are not in the best interest of all investors.
June 26, 2020

4 signs there may be a new bull market on the horizon

The opinions are those of the author(s) and subject to change.
Historic volatility brought an 11-year bull market to an end in March,1 but 2020 could mark the beginning of a new one. That's not as counterintuitive as it may sound, says Niladri Mukherjee, head of CIO Portfolio Strategy, Chief Investment Office, Merrill and Bank of America Private Bank. "New bull markets are born from the depths of despair, when it seems that all hope is lost."
While millions remain unemployed and the coronavirus has yet to be eradicated, the economy offers reasons for encouragement. "May retail sales, released this week, were up 17.7% from April, much higher than the expected 8.8%," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "Homebuilder sentiment posted its biggest monthly gain ever and manufacturing numbers are consistently moving up."
New bull markets are born from the depths of despair, when it seems that all hope is lost.
— Niladri Mukherjee,
Head of CIO Portfolio Strategy, Chief Investment Office,
Merrill and Bank of America Private Bank
Risks abound, interest rates and growth remain very low, and many investors are understandably bearish. Yet markets are responding favorably to the positive news. And the Federal Reserve has made clear its intention to continue providing liquidity while inflation remains at low to moderate levels — two keys to a sustained recovery, Mukherjee says. Here are four reasons he believes a long-term bull market may be on the way.
  1. Oil bounces back. Since the epic collapse in April (when prices briefly went negative), oil prices have nearly doubled as motorists returned to the roads.
  2. The dollar weakens. "The U.S. dollar has reversed its scorching rally from March," Mukherjee says. "This is less about a loss of faith in the U.S. fiscal position and more a signal of stabilization and confidence in global growth."
  3. Stocks rally across sectors. Healthcare, technology and communications stocks have naturally led the way during the pandemic. But since mid-May, cyclical stocks such as industrials, financials and energy have improved as well, along with higher-risk small-cap and value stocks. "That's a healthy sign in terms of overall market participation," Mukherjee notes.
  4. Corporate credit improves. "Companies have been able to issue record amounts of debt to shore up their balance sheets," Mukherjee says. Access to credit has in turn reduced fears of widespread bankruptcies, he adds.

What could this mean for investors?

Another indicator of long-term market potential: bearish investors hold large sums of cash awaiting reinvestment. "More than $4.5 trillion of cash is parked in money funds that have not participated in the current rally," Mukherjee says. The road ahead could be a bumpy period of "creative destruction," he adds. "Declining business models will either shrink in market value, go out of business or be taken over to be fixed by stronger players. Ultimately, this should raise productivity for the broader economy." Meanwhile, innovations in 5G and other technologies should prompt new waves of technology investment.
Yet despite the long-term potential a secular bull market may offer, individual investors should approach it with care. "We expect periodic volatility throughout the summer, given the number of risks that are out there," Hyzy says. Threats include a major second wave of the virus, which could stall the reopening process and threaten economic recovery.
Maintain a diversified portfolio geared to your long-term goals, rebalance in response to volatility, and consider strategic ways to prepare for a possible bull market ahead, Hyzy advises. Adds Mukherjee: "Investors will have to be disciplined, nimble and focused on managing risks in order to capture these opportunities."
For more on where markets and the economy may be headed next, tune in to the latest Merrill CIO Audiocast.
1 "Coronavirus Sell-Off Sends Plunging Dow Into Bear Territory After 11-Year Bull Market," US News, March 11, 2020.

Information is as of 06/26/2020.

Opinions are those of the author(s), as of the date of this document, and are subject to change.

Investing involves risk, including the possible loss of principal.

Past performance is no guarantee of future results.


The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation.
Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Stocks of small-cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies.

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
June 19, 2020

Coronavirus & climate change: Cleaner air but stalled solutions

The opinions are those of the author(s) and subject to change.
As deadly as it has been, the coronavirus has given one undeniable (if temporary) gift to the planet: cleaner air. "The global economic shutdowns have sharply reduced the level of global greenhouse gas emissions this year," says Joe Quinlan, head of CIO Market Strategy, Chief Investment Office for Merrill and Bank of America Private Bank. Levels of fine particulate matter in New York, Delhi, Sao Paulo and other major cities have dropped from 25% to as much as 60%, Quinlan adds.
Climate change directly endangers the global economy, and mitigating risks remains a key objective of governments and corporations alike. We see it as an important long-term investment theme.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank

Near-term threats to climate-change solutions

Yet even as pollution-causing activity has been temporarily curtailed, the pandemic is disrupting efforts to reverse climate change and other environmental threats, according to the new Chief Investment Office report, "The Great Clash: The Crisis Doesn't Stop Change." Since the pandemic began, battered oil companies have decreased their low-carbon investments, hygiene concerns have driven a resurgence of single-use plastics, and nearly 600,000 U.S. clean-energy workers have lost their jobs.
"There's no question the pandemic will cause some delays in environmentally friendly policies," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "But climate change directly endangers the global economy, and mitigating risks remains a key objective of governments and corporations alike," he adds. "We also see it as an important long-term investment theme."

Long-term investment themes to consider

Looking beyond the pandemic, investors may find some promising areas to consider, Quinlan says. Despite an expected downturn in 2020, wind and solar energy will likely continue the rapid growth they've experienced in recent years, he believes. Other promising areas for the post-coronavirus economy include:
  • Demand for electric vehicles, energy storage capacity and cleantech goods and services is expected to rise, and next-generation batteries hold special promise, Quinlan says.
  • Look for a growing demand for green building construction, including both new buildings and retrofitting, as well as energy-efficient electronics, appliances and building systems.
  • Energy-efficient LEDs will become an ever larger force in residential and industrial lighting, Quinlan says.
  • Spending on water treatment and waste management systems will likely rise, with special emphasis on irrigation, watershed management, filtration, drainage systems and desalination.
As with any investments, consider whether climate-change-related strategies make sense for your portfolio and long-term goals, Hyzy suggests. Either way, there's little doubt that the need for solutions will continue to grow long after the coronavirus has gone away.
"This disease, like others, will likely be brought under control," Quinlan says, "leaving it up to humanity to carry on the fight against climate change."
For more insights, read "The Great Clash: The Crisis Doesn't Stop Change" and tune in to the Merrill CIO Audiocast.
Information is as of 06/17/2020.

Opinions are those of the author(s), as of the date of this document, and are subject to change.

Investing involves risk, including the possible loss of principal.

Past performance is no guarantee of future results.


This material does not take into account a client's particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their differences, speak with your Merrill financial advisor.

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation.


Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
June 12, 2020

3 signals that the recession may have bottomed

The opinions are those of the author(s) and subject to change.
After months of economic disruption related to the coronavirus, the National Bureau of Economic Research made it official on Monday: The United States is in a recession that began in February.Footnote 1 Yet on the same day, the S&P 500 climbed back to higher levels than at the start of 2020.Footnote 2 What does that tell us? "Despite some of the biggest and sharpest economic declines on record and continuing volatility, we believe this recession has already reached its bottom," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "Normally, that takes six months or more."
Despite some of the biggest and sharpest economic declines on record and continuing volatility, we believe this recession has already reached its bottom.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank
Bolstered by unprecedented government stimulus and Federal Reserve actions, the strong markets of the last few weeks also reflect encouraging U.S. economic news, including stabilizing employment figures and improvements in manufacturing, auto and home sales and consumer spending, he says. While serious challenges undoubtedly remain — most notably concerns about a potential resurgence of the pandemic, which helped to drive markets down on Thursday — Hyzy and the Chief Investment Office team are closely following some key market measures that provide reasons for optimism. Here are three:
Cyclical versus defensive stocks. Companies in industries such as manufacturing, real estate and financial services are especially subject to ups and downs in the economy. Recently, these "cyclical" stocks have outperformed "defensive" stocks known for stable earnings and dividends in any conditions, Hyzy says. "That's a sign the economy has bottomed out and is turning for the better."
Clues from the yield curve. Interest rates for long-term bonds have risen recently in comparison with those for shorter-term bonds, Hyzy notes. A steeper yield curve — at a time when rates overall remain at historic lows and many investors remain bearish — may project market confidence in the long-term economy, he adds. "This is something we'll be watching closely."
The 20-day spike. Short-term stock performance may offer evidence about the market's long-term prospects. "One measure we watch is the 20-day spike. About 66% of the S&P 500 stocks hit new 20-day highs," Hyzy says. "When that number is higher than 60%, it's a sign of momentum and there's a better than 90% probability that the market return for the next 12 months could likely be positive," he says.

How can investors respond?

While these and other measures are useful in gauging where the markets may be headed, rapid buying and selling based on short-term data can be risky and counterproductive, Hyzy says. "We suggest a balanced, diversified portfolio based on your long-term goals." Investors may want to consider strategically adding cyclical stocks to their portfolios, as well as growth and value investments, he adds. At a time when interest rates remain low, bond investors may want to consider investment-grade corporate bonds.
For more on the outlook for economic improvement, tune in to the latest Merrill CIO Audiocast and read the latest CIO Capital Market Outlook (PDF).
1 "Recession in U.S. Began in February, Official Arbiter Says," The Wall Street Journal, June 8, 2020

2 "Stock Market Today," CNBC.com, June 8, 2020

Information is as of 06/12/2020.

Opinions are those of the author(s), as of the date of this document, and are subject to change.

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

This material does not take into account a client's particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their differences, speak with your Merrill financial advisor.

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
May 29, 2020

What's behind the markets' optimistic outlook?

The opinions are those of the author(s) and subject to change.
Though the initial coronavirus shock plunged markets, businesses and people's lives into disarray, recent market performance seems to be discounting the effect. In recent weeks, financial markets have rallied, even amid widespread unemployment and fears over business bankruptcies. On Wednesday, the Dow Jones Industrial Average (DJIA) closed above 25,000, a level not seen since early March.Footnote 1
Large institutional investors have transitioned from fear of being in the markets to fear of missing out.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank
The recent upward trend in the DJIA is a sign of underlying confidence that, once the deep economic uncertainties have been worked out, a stronger U.S. economy will emerge, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "Right now, it's a tale of two economies," he adds. While some industries are rebounding or even growing, for others the future remains uncertain. "The Great Convergence," a new Investment Insights report from the Chief Investment Office (CIO), describes how and when the recovery process could likely unfold and what portfolio strategy should be considered.

What's behind the markets' recent confidence?

Markets have been supporting an optimistic outlook in part because they have already written off the ravages of 2020 as a "pass-through year," Hyzy says. Adding to market confidence is unprecedented stimulus efforts by Congress and the Federal Reserve, with more potentially on the way. Amid signs that the U.S. economy, despite its challenges, appears better prepared for recovery than much of the rest of the world, "large institutional investors have transitioned from fear of being in the markets to fear of missing out," he believes. And while the risks of market setbacks remain, they may increasingly view dips as an opportunity to add to their positions, rather than exit markets altogether.

Expect not one but several recoveries

The overall economy is still in a transition phase to a recovery that could start in the third quarter and gain momentum in 2021. But it won't be easy, or uniform. "As the country re-opens, we expect various types of recoveries to unfold," Hyzy says. "While areas such as technology and healthcare seem poised for resilience and growth, challenged sectors such as airlines and automobiles will recover to differing degrees." Assuming an end to the health crisis, a new, post-coronavirus economy will likely take shape starting in 2022, Hyzy believes — one that emphasizes technology, healthcare, e-learning, e-entertainment and local rather than global supply chains.

What can investors consider for the days ahead?

"With volatility likely to remain for the foreseeable future, investors may want to review their portfolios more frequently," Hyzy says, adding that rebalancing and dollar cost averaging — which stretches asset purchases over time, thus potentially reducing the effects of volatility — can help them stay focused on underlying goals. When considering stocks, investors should favor the U.S. versus the rest of the world and large companies versus smaller ones for the foreseeable future, he believes. And at a time of extremely low interest rates, investment grade corporate bonds may offer better income potential (though with higher risks) than U.S. Treasuries.
For more insights, read the CIO report "The Great Convergence," and tune into the latest Merrill CIO Audiocast.
1 "Dow Climbs Above 25000 as Optimism Builds," The Wall Street Journal, May 27, 2020

Information is as of 05/29/2020.

Opinions are those of the author(s), as of the date of this document, and are subject to change.

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

This material does not take into account a client's particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their differences, speak with your Merrill financial advisor.

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation.
Asset allocation, diversification, rebalancing and dollar-cost-averaging do not ensure a profit or protect against loss in declining markets.

Keep in mind that dollar cost averaging cannot guarantee a profit or prevent a loss in declining markets. Since such an investment plan involves continual investment in securities regardless of fluctuating price levels, you should consider your willingness to continue purchasing during periods of high or low price levels.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Small cap and mid cap companies pose special risks, including possible illiquidity and greater price volatility than funds consisting of larger, more established companies.

Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.

Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government.

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
May 21, 2020

What reopening could mean for the economy

The opinions are those of the author(s) and subject to change.
Despite immense challenges facing many sectors of the economy, some encouraging signs suggest "green shoots" of a recovery that could begin as early as this summer, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. As all 50 states begin to take steps toward reopening after months of coronavirus-related lockdowns and consumer spending and unemployment slowly start to stabilize, "We fully expect the economy could begin to pick up in late June and July with a strong recovery in the fourth quarter," he notes.
We fully expect the economy could begin to pick up in late June and July with a strong recovery in the fourth quarter.
— Chris Hyzy,
Chief Investment Officer for Merrill
and Bank of America Private Bank
Among the encouraging signs: The Dow surged more than 900 points on Monday, in response to preliminary results from human trials of a vaccine that could potentially help the body's immune system fight the coronavirus.Footnote 1 Even after trillions of dollars in economic stimulus, in an appearance before Congress on Tuesday, Federal Reserve (Fed) chair Jerome Powell emphasized the Fed's ongoing commitment to supporting economic recovery.
There's no doubt that many obstacles remain and economic recovery could still face setbacks, especially if coronavirus rates spike and certain states are delayed on the road to fully reopening. "Everything depends on solutions to what is, first and foremost, a devastating global health crisis," Hyzy notes. But the following data points are evidence of economic resilience. The Chief Investment Office will be watching them closely in the weeks to come.
Unemployment. Weekly jobless claims released May 21 totaled 2.4 million.Footnote 2 Yet continuing claims — workers already unemployed and receiving ongoing benefits — have leveled off, Hyzy says. "That means workers coming back into the economy, whether temporary or full-time, are at the same levels as those going out. We'll be watching this closely as economic re-openings continue."
Consumer spending. "Those employment trends match up well, in our view, with the fact that the consumer has begun to stabilize," Hyzy says. Despite the April sales numbers and ongoing weakness in battered areas such as travel, leisure and entertainment, "spending in the last couple of weeks hasn't just evened out, it has risen. Even airlines have shown a modest increase in bookings recently."
Capital spending. Companies will have to adjust and accommodate to new ways of doing business, Hyzy believes. Remote work, social distancing and other changes call for new capital investments. "This could be one of the more robust economic catalysts as we head towards the middle part of 2021 and beyond," he says.
What can investors consider doing?
To help position themselves for the recovery, investors may want to consider stocks of large, well-established U.S. companies, Hyzy says. Promising areas include technology, healthcare and communications services, as well as companies focused on innovations for consumers, among others. With low interest rates likely to persist even during the recovery, investors may want to compensate for low yields from Treasury bonds with high-quality corporate bonds or dividend-paying stocks, he adds.
For more on what's ahead for the markets and the economy, and how to prepare, listen to the latest Merrill CIO Audiocast.
1 "U.S. Stocks Surge as Hopes for Coronavirus Vaccine Build," The Wall Street Journal, May 19, 2020

2 "Jobless claims total 2.4 million, still elevated levels but a declining pace from previous weeks," CNBC.com, May 21, 2020

Information is as of 05/21/2020.

Opinions are those of the author(s), as of the date of this document, and are subject to change.

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

This material does not take into account a client's particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their differences, speak with your personal professionals.

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government.

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.

Dividend payments are not guaranteed, and are paid only when declared by an issuer's board of directors. The amount of a dividend payment, if any, can vary over time.

This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument or strategy. Before acting on any information in this material, you should consider whether it is in your best interest for your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are correct only as of the stated date of their issue.
May 15, 2020

10 post-coronavirus trends & the investment opportunities they could create

The opinions are those of the author(s) and subject to change.
Even after loosening its grip, the coronavirus will leave indelible marks on society. "It's going to change how we think, live, work, learn, shop, travel and entertain," says Kathryn C. McDonald, Vice President and Market Strategy Analyst, Chief Investment Office, Merrill and Bank of America Private Bank. "History has shown that past disruptions of this magnitude, as painful as they can be, have often also boosted resourcefulness, productivity and innovation," adds Joe Quinlan, head of CIO Market Strategy, Chief Investment Office for Merrill and Bank of America Private Bank.
The coronavirus is going to change how we think, live, work, learn, shop, travel and entertain.
— Kathryn C. McDonald,
Vice President and Market Strategy Analyst,
Chief Investment Office, Merrill and Bank of America Private Bank
The primary effect of the coronavirus pandemic will likely be to greatly accelerate the pace of existing trends, such as remote work, e-learning, healthcare technology and rising public debt, believe McDonald and Quinlan. A new Chief Investment Office (CIO) report, "The Great Acceleration," authored by the two of them, lays out 10 major trends, as well as some of the long-term investment opportunities — and risks — they could create. "Keep them in mind as you consider investment strategies and your asset allocation strategy for the recovery ahead," says Quinlan.
1. De-globalization. Global supply chains are shifting away from China and becoming more local, with more reliance on automation and robotics.

Investment considerations: Potential opportunities in automation, robotics, 3-D printing and precision agricultural machinery.
2. The E-everything economy. The digital revolution is expected to speed up amid rising demand for telemedicine, e-commerce, e-learning and mobile banking, among others.

Investment considerations:Companies providing these services, as well as delivery drones and virtual reality, could prosper.
3. Next-gen tech infrastructure. A rise in remote work has underscored the need for better telecommunication infrastructure.

Investment considerations:Promising areas include 5G telecom networks, fiber optics infrastructure, cloud-based services and related activities.
4. Expanded government spending. Trillions of dollars in government stimulus have been crucial in addressing public health needs and limiting economic devastation.

Investment considerations:Higher government spending could spur future inflation, potentially benefiting real assets, such as commodities, and inflation-indexed bonds.
5. Widening inequality. he crisis has exacerbated already growing gaps in income, wealth, health and digital access, with calls for greater redistribution of wealth.

Investment considerations: A larger share of income for workers, to narrow those gaps, could put pressure on corporate margins.
6. Healthcare-infrastructure and innovation. The virus has exposed deficiencies in global health-care systems already under pressure from aging populations and chronic diseases.

Investment considerations: Opportunities in pharmaceuticals, vaccines, medical software and hardware, and related medical goods and services.
7. Biosecurity and smart cities. The need to monitor health and track and contain future diseases should accelerate the trend toward smart cities, while intensifying the debate over privacy.

Investment considerations: Greater potential demand for biosecurity hardware, artificial intelligence and related technologies.
8. Cybersecurity. Cyber-attacks have skyrocketed amid greater internet use from remote locations, leading to increased spending on data protection by government agencies, schools and corporations.

Investment considerations: Could benefit hardware and software makers, data management firms, defense contractors and IT service providers.
9. Increased consumer and business savings. Consumer debt, already low before the crisis, may dip further as people err on the side of caution. Companies, too, could cut back, no longer issuing debt to buy back shares.

Investment considerations: Higher savings rates could hurt consumer stocks and benefit high-quality growth stocks.
10. Artificial intelligence (AI) in disease prevention and health care. AI applications may enable faster, more accurate disease tracking, medical diagnosis and treatment and vaccine discovery.

Investment considerations: Should benefit large technology companies as well as health-care and artificial intelligence innovators.
Listen to the Merrill CIO Audiocast and read "The Great Acceleration: Speeding Toward a Post-Coronavirus World" for more insights on these trends.
Information is as of 05/15/2020.

Opinions are those of the author(s), as of the date of this document, and are subject to change.

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

This material does not take into account a client's particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their differences, speak with your personal professionals.

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets.

Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.
May 8, 2020

3 investing strategies to consider for the recovery ahead

The opinions are those of the author(s) and subject to change.
Though the pandemic came on with breathtaking speed, recovery will likely be slower — as evidenced by today's Labor Department announcement that the unemployment rate hit 14.7%, with 20.5 million Americans losing their jobs in April.1 "The sharp weakness in the job market comes on the back of a record increase in jobless claims since the crisis began," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Yet recent signs of financial market stability suggest that investors see grim employment numbers as a painful but expected "pass-through" phase on the way to a recovery that could start in late 2020.
Recovery will likely bring fundamental shifts in the global economy and behavioral changes among consumers and corporations, says Niladri Mukherjee, head of CIO Portfolio Strategy, Chief Investment Office, Merrill and Bank of America Private Bank. "Investment portfolios will have to adapt." A new Capital Market Outlook report from the Chief Investment Office (CIO) offers three strategies for long-term investors to consider. "Your advisor can help you evaluate whether any — or all three — might make sense for you," adds Hyzy.
We believe a large domestic consumer base, natural resources, education, healthcare, skilled labor and innovation help create advantages for U.S. companies.
— Niladri Mukherjee,
head of CIO Portfolio Strategy, Chief Investment Office,
Merrill and Bank of America Private Bank

1: Big companies and growth industries

Rationale: Research suggests that, going back to the 14th century, pandemics typically have been followed by extended periods of low interest rates, Mukherjee notes.2 Low rates generally create favorable conditions for stocks — especially of large companies and those in industries poised for growth, he adds. As millions of Americans buy, work, learn and visit their doctors remotely, opportunities may include healthcare technology, e-commerce and internet technology, among others.

2: High-quality dividends and corporate bonds

Rationale: "Following periods of deep economic stress, personal savings have historically increased as households have rebuilt wealth," Mukherjee says. With low rates limiting income from U.S. Treasuries, investors may find stronger income potential (albeit with added risk) from investment grade corporate bonds of modest duration, or from dividend-paying stocks.3 "Nearly 400 companies on the S&P 500 are offering dividends higher than the yields for 10-year Treasuries," he adds. A risk to consider: as of May 4, 85 companies on the S&P 1,500 had cut dividends — with more dividend cuts likely to follow. To help mitigate that risk, you could avoid hard-hit industries such as travel and seek large companies with strong balance sheets, he suggests.

3: U.S. stocks over international

Rationale: Compared with their counterparts in international developed and emerging markets, "large U.S. companies tend to have stronger fundamentals, including higher return on equity, profit margins and earnings growth," Mukherjee says. While U.S. stocks are relatively more expensive, they will likely make up that difference as the pandemic eases. "We believe a large domestic consumer base, natural resources, education, healthcare, skilled labor and innovation help create advantages for U.S. companies," he says.
For more insights from the Chief Investment Office on ways to prepare your portfolio for what may lie ahead, read the May 4 Capital Market Outlook, and listen to the Merrill CIO Audiocast.
1 "U.S. Jobs Report Shows Clearest Data Yet on Economic Toll: Live Updates," The New York Times, May 8, 2020.

2 "Longer-Run Economic Consequences of Pandemics," Federal Reserve Bank of San Francisco as of March 2020.

3 Corporations may determine to not pay dividends based on market circumstances.

Information is as of 05/08/2020.

Opinions are those of the author(s) and are subject to change.

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument or strategy. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are correct only as of the stated date of their issue.

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets.

Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government.

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.

Dividend payments are not guaranteed, and are paid only when declared by an issuer's board of directors. The amount of a dividend payment, if any, can vary over time.
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