LIVE MARKETS-Inflation crucial for markets next year - BofA

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INFLATION CRUCIAL FOR MARKETS NEXT YEAR – BOFA

Consumer prices will be key to market performance next year, with the Trump Administration expected to focus on bringing down costs heading into the mid-term elections, Bank of America analysts led by Michael Hartnett said in a report.

“Trump needs lower inflation to win midterms so geopolitical policy is lower oil prices, trade policy is lower tariffs, industrial policy is big intervention ("invisible hand" to "visible fist") to reduce healthcare, housing, insurance, utility prices,” the analysts said in their 2026 investment strategy outlook.

Global interest rate cuts, tax cuts and tariff cuts are all tailwinds for the market, so long as inflation remains under control, the bank said, adding that it is a “one-decision market…US CPI falls from 3% to 2% = bullish, CPI rises from 3% to 4% = bearish.”

Bank of America’s forecast is for the U.S. Consumer Price Index (CPI) to be at 2.9%. The analysts also expect global gross domestic product growth of 3.3%, and U.S. GDP of 2.4%.

Government bond yields will rise by 25 basis points, while the U.S. dollar drops 5%. Investment grade credit spreads will be in the 80 to 100 basis point area, global stocks will gain 8% and oil will end the year at $60 per barrel, while gold ends at $4,500 an ounce.

(Karen Brettell)

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