BofA tells investors to own the U.S. for growth and the world for value

Investing.com -- Investors should keep leaning into U.S. growth while using new capital to expand into global value opportunities, Bank of America strategists say, pointing to a rare window where both sides of the portfolio can work.

The bank says the backdrop for U.S. growth remains constructive, supported by expectations for three Federal Reserve cuts, a weaker dollar, and ongoing demand for AI-linked assets.

Strategists led by Jared Woodard note that bull markets typically end when “meager liquidity meets high leverage,” and 2025–26 still looks favorable as long as enterprise buyers or policymakers don’t say “enough.”

“Until then, stay long chipmakers & AI enablers,” strategists said.

BofA’s team believes that it is not the time to sell the AI ecosystem. They point to strong spending commitments from hyperscalers and sustained investor appetite, underpinned by what the team calls a broadening “AI bottleneck and beneficiary” theme.

At the same time, they caution that large-cap tech companies are becoming more capital-intensive and could face a Nifty Fifty-style rerating if fundamentals change.

Where fresh capital goes, BofA favors global value exposures with low correlation to U.S. growth.

The bank says “global stocks are set to outpace the U.S. by >15ppt, the most in 30 years,” and argues that world ex-U.S. small-cap value, emerging market (EM) dividend strategies, and EM debt offer attractive combinations of yield, valuation and diversification.

“Value never stopped working outside the U.S.,” BofA’s report says, pointing to rolling 10-year returns in emerging markets and Asia ex-Japan that have consistently outperformed growth, in contrast with the persistent value underperformance seen at home.

Strategists also anchor the global call in macro rebalancing and a weaker dollar, citing signs that countries are pushing for self-reliance, investment in domestic supply chains and reduced global imbalances. A softer dollar, they argue, could lift U.S. production, global consumption, EM debt, and commodities, they said.

The strategists also flag a long-term valuation concern for U.S. equities. One of BofA’s models implies a 10-year expected real return of –0.1% for the S&P 500, underscoring why the bank views international markets as a necessary complement to U.S. growth exposure.