Breaking insights on the economy, market volatility, policy changes and geopolitical events
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.”
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.
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.
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1Impax research and FactSet data as of 8/31/23. Three-year period: 11/30/20-8/31/23.
2Bureau of Labor Statistics. Data as of August 2, 2024.
3World at Work, “Rapinoe: Pay Equity Can Be a Goal for Everyone,” May 20, 2024.
4Bloomberg. Data through 2023.
5BofA Global Research, “Fighting for DEI while battling inflation,” March 3, 2023.
6Time period of 2008-2021. The Vanguard Group, “Diversity matters: The role of gender diversity on US active equity fund performance,” March, 2022.
7Fortune, “Percentage of women running Fortune 500 companies holds at 10.4%,” Jun 4, 2024.
8Wells Fargo, Impact of Women-Owned Business Report, January 2024.
9McKinsey & Company, “Women as the next wave of growth in US wealth management,” July 2020.
10Pew Research Center, “118th Congress has record number of women,” January 2023.
11Center for American Women and Politics, “Women Presidential and Vice Presidential Candidates: A Selected List,” 2024.
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.
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.
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:
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.
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).
“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.
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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:
“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.
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.
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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.
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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.
1 International Institute for Strategic Studies, 2023. Bloomberg, “It’s Not Just Ukraine and Gaza: War is on the Rise Everywhere,” Dec. 10, 2023.
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.
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. 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.
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.
Income from investing in municipal bonds is generally exempt from Federal and state taxes for residents of the issuing state. While the interest income is tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the Federal Alternative Minimum Tax (AMT).
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You have choices about what to do with your 401(k) or other type of plan-sponsored accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over a 401(k) from a prior employer to a 401(k) at your new employer, take a distribution, or leave the account where it is. Each choice may off er different investments and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment (particularly with reference to employer stock), and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care.
Diversification does not ensure a profit or protect against loss in declining markets.
Sustainable and 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.
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