Market briefs

August 30, 2024

What to know about infrastructure investing 2.0

FOR SOME INVESTORS, INFRASTRUCTURE MAY SOUND SOLID, predictable and a little dull. “Traditionally, most people associate infrastructure investing with toll roads and utilities, but the opportunities have significantly expanded with structural changes in the economy, including the energy transition, digitization and changing demographics,” says Anna Snider, head of Investment Manager Selection and Sustainable and Impact Strategy for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank. “In addition to being able to provide the potential for steady income and help minimizing the effects of an economic downturn, infrastructure investors may now have greater opportunity for capital appreciation and growth, given the significant amount of capital required to address these structural trends,” she notes.

While bridges, roads, airports and water companies remain key components, infrastructure increasingly refers to areas such as renewable energy and the rapidly digitalizing global economy. “Between 2023 and 2027, global data demand is expected to more than double, thanks to cloud computing, 5G and artificial intelligence,”¹ Snider says. The money needed for new data centers and power sources, along with building and maintaining traditional infrastructure, adds up to an estimated $15 trillion global “investment gap,”² she notes. “Projects run the gamut from energy and storage distribution to electric-vehicle charging and energy-grid modernization.”

Two ways to invest

This massive need creates potential opportunities for investors across publicly traded and private markets, Snider says.

Public investment opportunities might include shares of established companies such as water, gas and electric utilities, or communications companies. These companies are likely to benefit from the surge in demand for energy and data.

Private investment opportunities represent an opportunity for qualified investors to participate from an early stage in companies developing new technologies in areas such as storage batteries, clean energy, carbon capture and more. “The need for private capital to develop, mature and scale these new areas leads to a potentially significant growth opportunity,” Snider says.

However, along with higher return potential, private investment brings added risk, she notes. For example, as technology rapidly evolves, “There’s a risk that an asset will become obsolete before the end of its useful life.” Infrastructure investment may be affected by changes in political policies, and young companies in need of funding for growth may be especially susceptible to changing interest rates. To help balance these risks, it’s important to invest in infrastructure as part of a broadly diversified portfolio designed around your personal goals, Snider adds.

For a closer look at the world’s expanding infrastructure needs and potential opportunities for investors, read the CIO’s recent Investment Insights report, “Paving the way: Expanded opportunities in infrastructure investment.” And be sure to tune in regularly to the CIO’s Market Update audiocast series for more on the markets.

August 19, 2024

Women’s Equality Day challenge: Take our pop quiz

BUSINESS, POLITICS, ENTERTAINMENT, SPORTS: These are just a few of the arenas in which women have left their marks this year, breaking barriers, setting ticket-sale records, advocating for better pay. But the progress isn’t limited to just a handful of pop stars, athletes, filmmakers and politicians; American women everywhere have made great strides financially and professionally.

Why does this progress matter? For one thing, “Stronger gender inclusivity in corporate leadership and management yields more competitive company performance,”¹ says Sarah Norman, head of Sustainable Investing Thought Leadership for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank. For more insights, read The Glass Half Full: The Progress and Power of Women from the CIO.

With Women’s Equality Day 2024 approaching, answer the four questions below to see how much you know about the financial status of women today.

TEST YOUR KNOWLEDGE OF WOMEN'S PROGRESS

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Q: Despite the high cost of childcare, in July 2024, the labor force participation rate of women aged 25 to 54 hit a record high. What’s the correct percentage?

Q: True or false: The number of women on the boards of S&P 500 companies has nearly tripled in the last 10 years.

Q: How much wealth are women projected to control by 2030?

Q: What percent of Congressional seats are currently held by women — and how many women have run for President of the United States since its founding?

August 2, 2024

What’s causing the volatility — and how can you respond?

A LOWER-THAN EXPECTED JULY JOBS REPORT drove markets down on Friday, during a week already beset by volatility.¹ The 800-point plunge in the Dow Jones Industrial Average raised new concerns about the prospects for an economy that has remained surprisingly resilient throughout 2024. Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, offers four reasons for the latest disruption and four reasons to keep things in perspective.

4 drivers of volatility

1. Recession concerns. “As reflected in the jobs report, economic data has been consistently slowing,” Hyzy notes. “Investors fear early signs of a recession.”
2. Overdue rate cuts? Observers increasingly believe the Federal Reserve (the Fed) fell behind by not cutting rates at their July meeting.
3. Geopolitics. With November’s presidential election and wars abroad, “the geopolitical environment has become more uncertain,” Hyzy says.
4. Bond-buying pullback. A rate increase by the Bank of Japan and subsequent pull-back on bond buying has upset currency, interest rates and risk assets such as technology stocks globally.

4 reasons for calm

1. Recession unlikely. “We believe the economy is still normalizing from pandemic-era disruptions,” Hyzy says. “While the road back is rocky, the BofA Global Research team does not expect a recession, all things considered.”
2. Strong earnings. “Corporate profits remain healthy. We expect low double-digit growth for the S&P 500 this year, and mid to high single digits in 2025,” Hyzy believes.
3. Rational rate decisions. While rate moves naturally draw extra attention amid volatility, the Fed is working to normalize rates based on inflation and employment trends, rather than panic over a recession, Hyzy says. And potentially significant cuts appear likely soon. “The Fed funds futures market now has a better than 80% probability of a 50-basis-point cut in September.”
4. AI-powered productivity. “The long-run benefits of generative artificial intelligence (Gen AI) across a number of sectors are just beginning,” Hyzy says. “Higher productivity combined with rapid innovation allows for more substantive corporate growth than many observers are seeing.”

Expect more volatility, and stay diversified

As the economy continues to work through these challenges, investors should expect above average volatility in the short term, Hyzy says. “Avoid sudden reactions to headlines and market shifts,” he suggests. “Stay diversified across and within asset classes and rebalance as necessary.” As you consider your long-term investment goals, he adds, “look for periods of market weakness as an opportunity to strategically add to your portfolio.”

For more on current market volatility, read “Four by Four Relay,” the latest Investment Insights from the CIO, and tune in to the CIO’s Market Update audiocast series.

July 12, 2024

Can markets top their strong first half of 2024?

DEFYING PREDICTIONS OF A MARKET LETDOWN, the S&P 500 index of the largest U.S. stocks surged 14.5% during the first half of 2024.¹ So, can equities maintain that momentum through the rest of the year? History says it often happens.

“Since 1950, in years when the S&P 500 returned greater than 10% in the first half, the index was higher 82.6% of the time in the second half,”¹ says Kirsten Cabacungan, Investment Strategist for the Chief Investment Office (CIO) at Merrill and Bank of America Private Bank. While past performance doesn’t guarantee future results, a recent Chief Investment Office Capital Market Outlook report, “Can U.S. equities take the heat?” highlights three factors supporting that hopeful outlook:

• Economic activity, while moderating, continues to outperform expectations, thanks to cooling inflation, a still-solid labor market and consumer spending.
• The rise of generative artificial intelligence (AI) is driving enthusiasm for U.S. companies.
• Corporate earnings are gaining momentum. “Analysts expect S&P 500 earnings to grow by around 11.0% this year and 14.4% in 2025, a big improvement over 2023,” Cabacungan says.²

What could hold the markets back?

Uncertainties, ranging from global geopolitics to the possibility that inflation could remain above the Federal Reserve’s 2% target longer than expected, remain potential roadblocks. And then there’s November’s contentious presidential election. “The Chicago Board Options Exchange Volatility Index (VIX) has historically risen 25% on average from July to November during U.S. election years since 1928,” Cabacungan says.³ While stocks tend to rally after an election, lingering volatility could dampen second half results, she adds.

Market choppiness could create potential buying opportunities

Despite the markets’ strong first-half performance, the economy is still working through extraordinary disruptions from the pandemic. “Until that’s complete, investors should anticipate some market choppiness,” Cabacungan notes. She suggests staying diversified both across and within asset classes and looking for opportunities to strategically add to your portfolio during times of weakness.

For more tips and insights, be sure to watch the 2024 Midyear Outlook, “Bridge to a more bullish future?” premiering on July 18 at 2 PM (ET).

June 21, 2024

Markets at midyear: Where do we go from here?

“THE MARKETS AND U.S. ECONOMY have shown remarkable resilience so far in 2024,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Despite persistent inflation, elevated interest rates and global unrest, the S&P 500 rose by more than 10% in the first 100 days of the year. And, though there’s no guarantee of future performance, points out Hyzy, “historically, gains of 10% or more over the first 100 days have led to a positive year overall 76% of the time.”¹

So, what could investors expect for the rest of 2024 and beyond? “We think today’s somewhat choppy environment is a bridge to a more bullish future,” says Hyzy. Watch the Market Decode video above to understand the factors supporting this view. And for a more detailed look at potential future market performance and how you can prepare, tune in to the upcoming 2024 Midyear Outlook webcast, “Bridge to a more bullish future?” on July 18 at 2 PM (ET).

In it, Hyzy will be joined by analysts from the Chief Investment Office and BofA Global Research to take a deeper dive into where the markets and economy are now — and where they may be headed next.

TEST YOUR MIDYEAR MARKET KNOWLEDGE

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Q: True or False: All three major stock indexes — the Dow, the S&P 500 and the Nasdaq — have broken records so far in 2024.

May 20, 2024

Reasons to join the ‘Stay Invested’ party this election year

MARKETS ARE ESSENTIALLY APOLITICAL. “That’s the main thing investors should keep in mind during election years,” says Joe Quinlan, head of Market Strategy for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank. Long-term market returns are driven more by market fundamentals, like the strength of the economy and corporate earnings, than they are by assumptions about a political candidate’s possible future policies.

So, while it’s true that uncertainty about the outcome of elections can cause heightened volatility,¹ investors shouldn’t “vote” with their assets by trying to reconfigure their portfolios to align with what may lie ahead. “Making investment decisions along political party lines is a great way to underperform the broader market,” says Quinlan.

“Instead, join the ‘Stay Invested’ Party,” he suggests. History tells us that U.S. equity returns during election years and non-election years are not dramatically different.

What’s more: From 1953 to the present, $1,000 fully invested in the S&P 500, regardless of party in power, would be worth $1.7 million today versus only $56,000 if you kept the same amount invested only during Democrat-led administrations, and $30,000 if you kept it invested only during Republican-led administrations.²

“All the more reason not to try to time the markets or make major moves before Election Day,” says Quinlan, who offers these three useful reminders for investors during election years:

1. Stay focused on your long-term goals.
2. Stay diversified across all asset classes, with an emphasis on quality.
3. Above all, stay invested.

“In fact,” he says, “you could consider using periodic volatility leading up to the election as an opportunity to add to your portfolio.”

For more timely insights, watch “Investing in a year of election uncertainty.”  And be sure to read  Capital Market Outlook and tune in to the CIO’s Market Update audiocast series regularly.

April 19, 2024

A brighter future for renewable energy stocks?

WITH RENEWABLE ENERGY EQUITIES TUMBLING by more than half since their highs in early 2021¹, investors may wonder if the sun has set on solar and wind. Yet, with another Earth Day upon us, the underlying drivers are as strong as ever, says Joe Quinlan, head of Market Strategy in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. “We believe the global transition toward a clean energy future is still very much in progress.”

In the “Market Decode” video above, Quinlan looks at the myriad factors that drove clean energy stocks to new heights and more recently spurred their decline. He also highlights the forces shaping a potential comeback for the sector, as well as the market segments that could benefit from this ongoing shift in the global energy mix.

For a deeper dive, read “Renewable energy equities: What next after the boom and bust?” in this edition of the CIO’s  Capital Market Outlook. You can find more on investing and the environment in “Climate risk and the markets: 5 key questions answered.”  And be sure to check out our most recent Capital Market Outlook for the latest market news and insights.

EARTH DAY POP QUIZ: TEST YOUR KNOWLEDGE

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Q: True or false: The world’s biggest carbon dioxide emitter is also the world’s biggest renewable energy consumer?

April 10, 2024

How troubling are the interest costs on U.S. debt?

WITH FEDERAL INTEREST PAYMENTS REACHING $659 billion in 2023, some investors fear the government’s spiraling costs to service rising debts could disrupt the broader economy. “That’s a big, concerning number — nearly twice the level from 2020,” notes Joe Quinlan, head of Market Strategy for the Chief Investment Office (CIO) at Merrill and Bank of America Private Bank. “Fortunately, we believe the U.S. economy is large enough to limit any market impact.”

The situation. The spike reflects two dynamics, Quinlan notes in the latest CIO Capital Market Outlook report: A $9.5 trillion surge in U.S. debt from 2020 to 2023 and higher U.S. Treasury rates.

The concern: Higher government borrowing costs could push borrowing costs for businesses and individuals higher for longer, dragging the economy down in the short term.

Keeping perspective. Even at elevated rates, government interest payments represent about 2.4% of U.S. GDP.¹ “That’s higher than over the past decade, but we see this as manageable for a $28 trillion economy that remains the most dynamic and innovative in the world,” says Quinlan.

Investment considerations. “Investors should follow the news but avoid precipitous reactions and instead stay well-diversified and focused on long-term investment goals,” Quinlan advises.

Tune in to the CIO’s Market Update audiocast series weekly to stay up to date on financial news that could affect your investments.

TEST YOUR MARKET KNOWLEDGE

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Q: What percentage of U.S. government spending goes to paying debt interest?

January 31, 2024

New goal: Limiting geopolitical risk in your portfolio

WHILE UKRAINE AND GAZA DOMINATE HEADLINES, they’re just two of more than 180 current regional conflicts, the highest number in 30 years.¹ A global landscape marked by such rising tension and uncertainty could affect U.S. and global economies, markets — and investors — for years to come, notes Joe Quinlan, head of Market Strategy in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank.

“Don’t pause investing or diverge from your long-term strategy, but do consider geopolitics along with corporate earnings, valuations and other metrics when making investment decisions,” Quinlan suggests. Watch the “Market Decode” video above for tips on how to incorporate  geopolitics into your investment decisions.

For more insights, read “Are the markets really impervious to geopolitical risks?” in the January 8, 2024 Capital Market Outlook, and tune in to the CIO’s Market Update audiocast series for weekly check-ins on the markets and economy.

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.

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.