BofA Hartnett’s 2026 forecast: Lower yields, higher risks for AI capex
Investing.com -- 2026 is shaping up as a lower-inflation, lower-yield environment, while investors continue to position for stronger growth, Bank of America strategist Michael Hartnett said in a note.
Hartnett says investors are broadly positioned for a “run-it-hot” scenario, with PMI and earnings acceleration driven by rate cuts, tariff cuts and tax cuts.
While Bank of America’s base case sees global EPS growth of about 9% in 2026, Hartnett cautions that this outcome is unlikely to surprise to the upside given rising U.S. unemployment, “and bond vigilantes slowing AI capex boom, unless big surprise China stimulus.”
He believes that inflation and yields are more likely to fall than rise. Strategists see a positive first-half 2026 surprise coming from CPI trending toward 2% and the U.S. 10-year yield falling toward 3.5%.
Meanwhile, global liquidity is peaking, with fewer rate cuts than markets expect and the Bank of Japan moving toward its highest policy rate since 1995.
Against that backdrop, Hartnett says the team is not chasing consensus risk-on trades, preferring to express the lower-inflation view through long zero-coupon bonds, mid-cap equities, emerging markets and natural resources.
Over the past week, equity funds pulled in $98.2 billion in the week ended Dec. 17, driven by a record $145 billion inflow into equity ETFs, likely linked to S&P 500 rebalancing.
U.S. stock funds saw their second-biggest weekly inflow on record at $77.9 billion, while money market funds suffered their largest outflow since April.
By contrast, long-only active equity funds recorded a record $46 billion weekly outflow, reinforcing the long-term shift from active to passive strategies.
Regionally, U.S. equities extended inflows for a 14th straight week, while Europe and Japan saw inflows resume and emerging markets logged an eighth consecutive week of gains.
