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Breaking insights on the economy, market volatility, policy changes and geopolitical events.
November 1, 2023

Getting comfortable with "higher for longer"

HFL stands for "Higher For Longer," and it doesn't just apply to interest rates anymore, says Joe Quinlan, head of CIO Market Strategy. Given the tight labor market, strong wages and elevated energy prices, it's unlikely rate cuts will come any time soon, Quinlan explains. Markets and investors have pretty much accepted that fact. But the HFL trend also applies to a number of other areas that could affect the markets and your investing decisions. Among them: global energy prices, defense spending and the U.S. deficit.

Description

Title
[On-screen text]
Higher for longer isn't just for interest rates anymore
Please read important information at the end of this program. Recorded on 10/19/2023
[Joe Quinlan speaking throughout]
HFL... It may sound like a new sports league. But it's actually a trend we believe will shape the investment landscape for the next several years.
[On-screen text]
Joe Quinlan, Head of CIO Market Strategy, Chief Investment Office, Merrill and Bank of America Private Bank
Hi, I'm Joe Quinlan, with a look at what HFL -- which stands for "higher for longer" -- could mean for the markets and for your portfolio.
[On-screen text]
A "Higher-for-Longer (HFL) world"
  • Interest rates
    First up, interest rates. A tight labor market, strong wages and elevated energy prices are help keeping inflation higher than the Federal Reserve's target range, likely dashing hopes of any rate cuts any time soon.
[On-screen text]
A "Higher-for-Longer (HFL) world"
  • Global energy prices
    Next, global energy prices are being fueled by rising geopolitical tensions, along with oil production cuts and tighter supplies heading into the colder months.
[On-screen text]
A "Higher-for-Longer (HFL) world"
  • Global defense spending
  • U.S. budget deficit
  • Political discourse in DC
Also on the HFL list: global defense spending, the U.S. budget deficit and the pitch of political discourse in Washington
So, what does this mean for investors?
[On-screen text]
Higher rates should be favorable for cash and fixed income
On the positive side, higher rates should be favorable for cash and fixed income.
[On-screen text]
Elevated oil prices could boost energy stocks and commodities
Elevated oil prices could boost energy stocks and commodities, such as metals and minerals.
[On-screen text]
Strong defense spending could help equities in defense and cybersecurity
And strong defense spending may help equities in defense and cybersecurity.
On the other hand, the growing deficit could weaken the U.S Dollar and Washington politics could weigh on consumer and business confidence.
For more, read our Capital Market Outlook for October 10th. And if you're working with an advisor, check with them about what these insights could mean for you.
[On-screen disclaimers]
Important Disclosures
The opinions expressed are as of 10/19/2023 and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
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. Investing in commodities or the securities of companies operating in the commodities market involves a high degree of risk, including strategies and investment practices that may increase the risk of investment loss, including the principal value invested.
Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
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 ("BofA Corp.").
Merrill makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp. MLPF&S is a registered broker‐dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp.
Merrill Private Wealth Management is a division of MLPF&S that offers a broad array of personalized wealth management products and services. Both brokerage and investment advisory services (including financial planning) are offered by the Private Wealth Advisors through MLPF&S. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill's obligations will differ among these services. Investments involve risk, including the possible lo ss of principal investment.
The banking, credit and trust services sold by the Private Wealth Advisors are offered by licensed banks and trust companies, including Bank of America, N.A., Member FDIC and other affiliated banks.
Bank of America Private Bank is a division of Bank of America, N.A., Member FDIC and a wholly owned subsidiary of BofA Corp. Trust and fiduciary services are provided by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A.
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[-] Close transcript
Watch the video above for what these higher-for-longer trends could mean for your portfolio. For more insights, read "Higher-for-Longer Goes Beyond Interest Rates: What Investors Need to Know" in the October 10, 2023 Capital Market Outlook and tune in to the CIO's Market Update audiocast series for weekly insights on the markets and economy.
October 27, 2023

What rising geopolitical risks could mean for your investments

The conflict in the Middle East has pushed already-simmering global tensions to their highest level in recent memory. "Geopolitics used to be considered a lower-level financial risk. Now, it may be the top risk," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "In addition to the overriding humanitarian concerns, the terror attack in Israel, the continuing conflict in Ukraine and tension in the Indo-Pacific create a new level of uncertainty and raise urgent questions about the potential impact on the economy and financial markets," he adds.

Description

Title
[On-screen text]
Please read important information at the end of this program. Recorded on 10/26/2023.
[Chris Hyzy speaking throughout]
The war in the Middle East following a terror attack in Israel comes at a time of an already higher level of concern about potential impacts of geopolitical events on the economy and financial markets.
[On-screen text]
Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank
Hello, I'm Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.
Global uncertainties are high, including Russia's continuing war with Ukraine and challenges with China.
To get a sense of what this all might mean for investors, I've tapped some of our leading thinkers at the Chief Investment Office and BofA Global Research.
[On-screen text]
Read the article "What rising geopolitical tensions could mean for the markets and economy"
Their insights are captured in an article you can find right now on our websites, "What rising geopolitical tensions could mean for the markets and economy."
Among their key takeaways, despite the heightened geopolitical risk:
[On-screen text]
What we could expect next:
  • U.S. economy and markets may experience only modest effects
History tells us the U.S. economy and markets may experience only modest and short-term effects.
[On-screen text]
What we could expect next:
  • Corporate earnings might be affected by an extended conflict
    • Aerospace and defense could see higher spending
Corporate earnings might be affected if an extended conflict disrupts global trade, travel and overall consumption. Yet industries such as aerospace and defense could experience higher spending.
[On-screen text]
What we could expect next:
  • Potential oil shocks and price increases could hit U.S. consumption
  • U.S. energy independence could soften the impact
Potential oil supply shocks and excessive price increases could hit U.S. consumption. But U.S. energy independence could otherwise soften the impact of global supplies relative to the rest of the world.
So, what does all of this mean for investors?
The best course is to stay focused on your personal goals and avoid sudden decisions in the wake of such alarming headlines.
[On-screen text]
Maintain a balanced portfolio, think long term,
and stay diversified across and within asset classes
Stay balanced, think long term, and keep a high level of diversification across and within asset classes while the wall of worry remains overly extended.
If you work with an advisor, now might be a good time to reach out for a discussion.
In the meantime, I hope you'll take the time to read our article about rising geopolitical volatility and its potential impacts and what it might mean for your investments.
Thank you.
[-] Close transcript
In the video above, Hyzy discusses potential impacts on the global oil supply, individual industries and corporate earnings, and suggests steps you might consider now to help maintain progress toward your goals. In the midst of rising geopolitical tension, "stay balanced, think long term, and keep a high level of diversification across and within asset classes," he says. If you work with an advisor, now might be a good time to reach out for a talk.
For a deeper look at the impact of heightened global risks, read "What rising geopolitical tensions could mean for the markets and economy", a Q&A with leading analysts across the Chief Investment Office and BofA Global Research. And keep up with our latest insights by tuning in regularly to the CIO Market Update audiocast series.
September 26, 2023

What could a government shutdown mean for investors?

Right now all eyes are on Washington and whether the necessary discretionary-spending appropriation bills can be signed before midnight on September 30 to avoid a government shutdown. Investors, of course, are wondering what the impact might be on the markets and economy.

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Title
What could a government shutdown mean for investors?
[On screen text]
With a potential government shutdown looming at the end of September, you may be wondering how markets might react and what, if anything, you need to do to prepare.
Hello, I'm Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.
Government shutdowns are unsettling in many ways - particularly for government employees who may be furloughed for a period of time. But even if the necessary appropriations bills or a stopgap spending bill aren't passed by midnight on September 30 and a shutdown does occur, we currently see this as a situation for investors to watch closely but avoid overreacting to.
Here's why:
First - Shutdowns are nothing new. In fact, we've seen 20 of them since 1976, and most last only a matter of days.
Second - While they may contribute to short-term volatility, shutdowns historically have little or no lasting impact on economic growth or investment markets. When the government partially shut down in December 2018 for 34 days - the longest shutdown on record - markets rose nearly 16% in the following three months and more than 33% in the ensuing year.
Finally - While many government offices could temporarily close, essential services like Social Security, Medicare, air traffic control and law enforcement would remain in place. Operations of the Federal Reserve and U.S. Treasury would also remain largely unaffected.
Bottom line: We'll be carefully following the news from Washington over the next several days. Check back with us for regular updates and speak with your advisor to ensure your portfolio is properly balanced to pursue your long-term goals. Thank you.
[-] Close transcript
Though serious events, shutdowns have historically been less concerning from an economic and market perspective than you may imagine, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. It's also important to remember that mandatory spending, such as Social Security and Medicare payments, would continue in the event of a shutdown. Watch the video above for more insights and be sure to check back for updates.
You'll find an interesting chart highlighting the market effect of the last 20 government shutdowns in the September 18, 2023 Capital Market Outlook from the CIO. For more timely market commentary, tune in to the CIO Market Update audiocast series.
August 31, 2023

Back to school loan repayments: Big test for borrowers and the markets?

Federal student loan repayments, suspended during the pandemic, are set to kick in again this fall after a three-year break, with first payments coming due in October. Already, 43 million borrowers, with estimated average monthly payments of $383,Footnote 1 are beginning to rework their budgets, causing economists, retailers and investors to brace for a potential drop in consumer spending this fall.Footnote 2

Description

Title
The three-year hiatus on federal student loan repayments is entering its final months.
[On screen text]
Big test for borrowers:
The return of student
loan repayments
Please read important information at the end of this program. Recorded on 8/03/2023
[On screen text]
In October, borrowers will
Start repaying student loans
for the first time since 2020
In October, 43 million borrowers will start repaying their loans for the first time since 2020. So, a big question for investors is, "how will this affect markets and the economy?"
[On screen text]
Emily Avioli
Investment Strategist, Chief Investment Office
Merrill and Bank of America Private Bank
Hi, I'm Emily Avioli with the Chief Investment Office.
[On screen text]
Student loans are
estimated to average
$383 per month
Source: Strategas, July 5, 2023
Student loan repayments are estimated to average about $400 per month, which could mean that affected consumers will have less money available for both routine purchases and big-ticket items.
[On screen text]
Concerns this could
Dampen consumer spending,
which has been a bright spot
in the economy
There are some concerns that this could dampen consumer spending, which has been a bright spot in this economy and is often credited for keeping its momentum going.
[On screen text]
Reasons for optimism
Consumers have a buffer
of excess savings
and available credit
Fortunately, we see reasons for optimism. Consumers still have a buffer of excess savings and plenty of available credit.
[On screen text]
Reasons for optimism
Plans for an "on-ramp"
repayment program
Plans have been announced to launch an "on-ramp" to repayment, so that financially vulnerable borrowers who miss payments during that first year are not considered delinquent.
[On screen text]
Reasons for optimism
Potential for refinanced loans
with longer terms and
adjustable rates
Finally, nontraditional lenders could step in to refinance loans with longer terms and adjustable rates. So the bottom line is that while both consumers and retailers will likely feel the pinch,
[On screen text]
Student loan repayments
could be less of a headwind
than expected
we expect the resumption of student loan repayments to be less of a headwind for markets and the economy than many expect.
For more insights, check out our weekly Capital Market Outlook. Thanks for watching.
[-] Close transcript

What could that mean for the markets and the economy?

"We believe the impact, while real, could be more modest than many expect," says Emily Avioli, investment strategist in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. Investors could consider defensive areas, such as consumer staples, over consumer discretionary stocks as spenders begin rethinking major purchases, she suggests. But, overall, "they should avoid overreacting." Watch the video above for more insights.

How borrowers can prepare

As you begin to look for ways to adjust your budget to accommodate the renewed monthly payments, you could also review your repayment plan with your loan servicer. Go to third-party website There are several options to consider popup, depending on your circumstances and income, and you can switch at any time.
In addition, the government has announced plans to launch Go to third-party website a new income-driven repayment plan popup, called the SAVE plan, that could reduce payments for some borrowers.Footnote 3 Helping to ease the transition, the government has proposed a 12-month "on-ramp" process, during which vulnerable borrowers who miss a payment won't be considered delinquent, Avioli notes. In addition, "outside lenders may offer to refinance loans with longer terms and adjustable rates."
For more on the potential impact of student loan repayments, read the CIO's July 17 Capital Market Outlook.
Footnote 1 Strategas, July 5, 2023

Footnote 2 Chief Investment Office, Merrill and Bank of America Private Bank, "Capital Market Outlook," July 17, 2023

Footnote 3 CNN.com, "Biden administration launches new income-driven student-debt repayment plan," July 30, 2023.
August 3, 2023

Perspective for investors on the U.S. credit downgrade

For the first time in more than a decade, a major ratings agency has downgraded the U.S. government's long-term debt rating, from AAA to AA+.Footnote 1
Why they did it: Fitch Ratings attributed Tuesday's downgrade to the U.S. government's "steady deterioration in standards of governance over the last 20 years"Footnote 2 — for example, the lengthy debt ceiling battle that ended in June. Among other contributing factors: tax cuts, spending increases, plus rising costs for Social Security and Medicare.
Quote: The downgrade is unlikely to affect Treasurys' position as a bedrock asset for investors.
How markets are responding: "While some people were surprised by the news, these trends are well known by market participants and reaction thus far has been muted," says John Donovan, head of Fixed Income in the Chief Investment Office for Merrill and Bank of America Private Bank.
Underlying strengths: "In our opinion, the government's fiscal challenges, while real, are mitigated by the strength, competitiveness and diversity of the U.S. economy and the dollar's role as international reserve currency," Donovan says. Despite tempting comparisons to a similar downgrade by Standard & Poor's in 2011, the current move comes as the economy is showing surprising resiliency, he notes. For example:
  • Second quarter real GDP growth is stronger than expected, at 2.4%, according to the Bureau of Economics Analysis.
  • Headline inflation is moderating, to 3.1% now compared with 9.1% a year ago.
  • "Of the three largest global economies — the U.S., China, and the European Union — the U.S. remains the most competitive and innovative," Donovan notes.
Investor moves: While the government's fiscal strength bears close scrutiny moving forward, this week's news should not prompt sudden portfolio changes — not even in U.S. Treasurys. Says Donovan, "We believe the downgrade is unlikely to affect Treasurys' position as a bedrock asset for investors."
For a closer look at what the downgrade might mean, read the recent Investment Insights report from the CIO, "Fitch downgrades U.S. government." For more on the markets and economy, tune in weekly to the CIO Market Update audiocast.
Footnote 1 The Wall Street Journal, "Fitch Downgrades U.S. Credit Rating," Aug. 1, 2023.

Footnote 2 Fitch Ratings, "Fitch Downgrades the United States' Long-Term Ratings to 'AA+' from 'AAA'; Outlook Stable," Aug 1, 2023.
July 10, 2023

Tracking the elusive recession of 2023 — or is it 2024?

At the start of 2023, most signs seemed to point to a recession by summer. Well, summer is here, and the recession seems to be playing hide and seek.
Historically, the U.S. economy dips into recession an average of 15 months after the yield curve inverts — meaning when short-term bonds offer higher yields than long-term bonds. "That happened in March 2022. So, we should be there by now," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Yet crucial parts of the economy have so far bucked the trend, and markets have been on a tear.
Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank next to his quote 'The agreement adds a degree of stability that markets and investors will welcome.'
Have we skipped the recession and gone straight into a new period of growth? More likely, it's a case of recession delayed, not avoided, as the economy works through the aftereffects of historic pandemic liquidity in unpredictable ways, says Hyzy. Forecasters now expect the recession may not arrive until early 2024, Hyzy notes.

Rollercoaster recession?

"As disruptions hit different parts of the economy at different times, we're seeing what amounts to a series of rolling recessions, rather than one single downturn," Hyzy says. While housing and manufacturing have already slowed, the service economy, consumer spending and the labor market have yet to follow suit.
As these areas cool in the second half of 2023, corporate earnings and hiring will likely slow down as well, Hyzy believes. Whether a recession is officially declared or not, investors should expect a softening economy and choppy markets for the balance of the year. Yet the rolling nature of the downturn should prevent a "hard landing," he adds.

A new bull market on the horizon

What should investors consider as all these factors sort themselves out? High-quality stocks with reasonable valuations could help equity investors preserve and grow wealth amid the uncertainty, Hyzy says. "We're emphasizing areas such as healthcare, energy and industrials, with solid technology stocks as well," he adds. As consumer confidence and spending decline, consumer discretionary, materials and real estate may struggle.
"But whatever the months ahead have in store, don't invest just for a recession," Hyzy cautions. By mid-2024, with the economy, interest rates and inflation stabilizing, he expects the start of a new, extended bull market cycle driven by innovation and productivity.
For the latest on a potential recession timetable, read Consensus pushes out recession in the June 26 Capital Market Outlook. Then check out portfolio considerations in this CIO report: Timing and positioning for a second-half recession.
For more timely insights on what to expect through the remainder of the year and beyond, read Midyear 2023: What's driving today's resilient economy?

Next steps

Important Disclosures

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

Opinions are as of the date of these articles and are subject to change.

Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.

This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

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 ("BofA Corp.").
All recommendations must be considered in the context of an individual investor's goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be in the best interest of all investors.

Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. 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.

These risks are magnified for investments made in emerging markets. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.

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