Chief Investment Officer, Bank of America Corp
2026 Year Ahead Outlook webcast
Watch the Chief Investment Office's 2026 Year Ahead Outlook webcast, *Powering up: What could drive the next era of growth?
About Christopher Hyzy
Christopher Hyzy, chief investment officer for Merrill and Bank of America Private Bank, has stated that he expects 2026 to be a year of a "proud bull" market, characterized by profit growth rather than multiple expansion. He described the current market momentum as an "elf rally" on the way to a "Santa Claus rally," and said that tailwinds in the first quarter of 2026 could include tax refunds and fiscal relief. Hyzy has also said that the market does not need a Federal Reserve rate cut in December to continue its upward trajectory, as it has already priced in a strong profit cycle through 2026. He has expressed a bullish outlook, referring to the current environment as an "Owl market" where investors seek confirmation of profit acceleration. Hyzy has emphasized that capital spending on AI and data infrastructure is accelerating, and that corporate earnings continue to surprise to the upside. He has advised investors to consider putting excess cash to workched and to stay invested for the long term, while also preparing for potential jolts and short-term volatility. Hyzy has noted that the market is seeing a broadening of participation beyond mega-cap tech, with sectors like energy and small caps showing strength. He has also stated that the Federal Reserve's recent liquidity announcement was a "risk on" move and that he expects markets to end the year on a high note.
Transcript (45 segments)
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Christopher Hyzy0:06
Hello, and welcome to our 2026 Year Ahead Outlook. We’re calling this program, “Powering up: What could drive the next era of growth?” I’m Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. As we look ahead, we see the potential for a new phase of economic and market growth, powered by AI innovation, infrastructure investment, energy transformation, and global shifts in defense and technology. Yes, there are risks. Geopolitical tensions, inflation, equity valuations, and concerns about an AI bubble. But we believe the underlying fundamentals are strong. Capital spending on AI and data infrastructure is accelerating, corporate earnings continue to surprise, U.S. consumers remain resilient, and investors are beginning to rotate back into equities with record cash still on the sidelines. In this program, I’ll be joined by leading analysts to explore what’s ahead, from policy and macro trends to key investment themes and how to position your portfolio for the opportunities and challenges of the year ahead. We’ll start with Haim Israel, Head of Thematic Investing at BofA Global Research, to unpack the forces reshaping the global economy, and how “Transition Investing” can help you prepare. Then, I’ll sit down with Marci McGregor, Matthew Diczok, and Joe Quinlan from our Chief Investment Office. They’ll share insights on markets, asset classes and practical ideas for your portfolio in 2026. Let's begin with my conversation with Haim Israel. Haim, thanks for joining me today. Great to have you here as part of our 2026 Outlook program. We're calling this year's webcast, “Powering up: What could drive the next era of growth?” Now recently, you've honed in on five major themes, you call the ABC’s of Transition Investing, which is a framework that helps investors understand and approach these changes in a much more structured way.
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Haim Israel1:55
Pleasure to be here, Chris. Yes, the world is changing. The world is changing very fast. We're in the middle of a tech revolution, something that we've never, ever seen in the past. We need more resources, geopolitical implications, left and right. Things are accelerating very fast. As a result, we think we need to start talking about transition and solution. We need to start adapting into the new world, because the new world is changing so fast. Most important, when we add up all of our different needs, our risks, everything that we need to confront in the next couple of years, we're getting to trillions of trillions of dollars of investments. We need to mobilize the capital market. We need to mobilize the private market. Private market will not take part of this unless there are returns. This is the essence of Transition Investing.
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Christopher Hyzy2:42
Two words that investors are talking a lot about these days, adaptation and resiliency. That's your first theme. Can you take us through that?
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Haim Israel2:51
Of course. So, we're heading into a world of deglobalization. This will create more and more geopolitical conflicts. This will create more and more investments. And as a result, we believe that geopolitic is going to be a big part of it. As a result, of course, that translates to defense investments, that translates to cyber, technology, infrastructure investment for each and every country. Automation. How do I rely on automation going forward? Because sometimes, I cannot rely on other countries to produce me things anymore. I need to understand where’s my infrastructure, where do I need to invest in that? Eventually, it all comes down to the race over technology, the race for AI. The tech war, as we call it in our world, which is going to, dramatically, increase tension between countries, it will, dramatically, increase the resilience, though, and the defense topics.
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Christopher Hyzy3:40
You mentioned infrastructure a few times here. You also talked about tech wars. We see that really playing out over this last couple of years, and potentially, accelerating. Your second theme is all about built infrastructure and resources. Let's dive into that.
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Haim Israel3:56
This tech revolution, we are starting to understand how much resources we will need in new infrastructure. We need roughly 50% more data centers in the world right now. Chris, if we will build all these data centers, we will need more land than Singapore, more energy than Japan. We will need more water infrastructure. Plus, we're going to have to rebuild the entire network because we are talking about different transmission, different needs, different storage. All that adds up up to $94 trillion of investments, give or take, the world GDP in the next 10 years. This is something that humanity have never, ever seen in the past. This is something that if we add automation on back of it, if we add technology, if we add all the different broadband networks and everything that we need over here, something that humanity is going to have to start worrying about. Because for the first time, governments have an interest to invest in infrastructure.
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Christopher Hyzy4:55
Infrastructure has always been a theme. Yeah, if infrastructure is the backbone to a big portion of the Transition Investing and the buildout that you've already talked about, the circulatory system could be clean energy. That's your third theme. Let's dive a little bit into that, but also, within that, how in the world, are we going to power up all of this?
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Haim Israel5:16
This is a great question. We will need so much more energy. We’ll have to double the global electricity grid in the next 10 years. We’ll have to pump at least 30% more energy to power all these data centers. We just don't have enough. Two things we need to understand here. First of all, we need more energy. So much more energy. We need energy that will be independent, that will be cheap, because we need a lot of it, and has to be scalable very fast. So, there's no one silver bullet that meets all of them. But renewable energy is the energy that meets all, most of those criterias. It is 25% cheaper than fossil, on average. It's scalable very fast, and it's independent. Every country can rely on one form of renewable energy. And the other element that we're going to see is nuclear, nuclear, nuclear. So, we saw with the first orders, in the United States, will quadruple nuclear capacity by 2050. Nuclear is definitely going to be part of the solutions. The second side is rebuilding the grid in a much more efficient way. We are now relying on grids which are decades, if not centuries, years old. We are relying on very old materials, no smart meters, no AI built in the networks. We can cut up to 25 to 35% of all energy, if we are just going to move to the next generation of networks and investments in smart grids, going forward.
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Christopher Hyzy6:44
So, Haim, let’s talk about the fourth theme. Everyone discusses the buildout of artificial intelligence, but it's deeper than that. We've talked a lot about the buildout of the digital infrastructure. Your fourth theme touches on two components of that, which is digital and human capital. Can you take us through that?
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Haim Israel7:01
There is already a race on the right human capital in the world. AI is already changing jobs, it’s disrupting the job market, left and right. Everything that we can automate, we automate already. Because of this deglobalization theme that we keep seeing, in order to bridge the gap of the workforce, we are using AI already. We need a completely different human capital. We need to reskill people in a very different way. We need human capital. We need human skills. A lot of the things that we've done in the past are not relevant to the new job. We think, Chris, that, we've been talking about human capital, by 2030, one billion people will need to be reskilled. Now, I'm a big believer that there will be more jobs than less jobs in five to 10 years. But A, the change is very, very fast. B, there will be very, very different jobs than what we had up until now. And C, which we need to start thinking about, the blue collar is making a huge comeback because AI can definitely write my codes and can design my computer, but still can't open my clogged sink or can change my lightbulb.
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Christopher Hyzy8:10
Let's switch to your last and final theme that you highlight in Transition Investing framework. And that's all about enabling finance. Someone, some areas have to support all of this, and have to finance a lot of this. Take us through that last theme.
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Haim Israel8:27
Money will not flow without returns, without, a proper return on equity, return on investments. And this is our fifth theme, that if we are looking for investments, we need to understand where the profit sits. This is what the capital market considers. So, it's not just doing good to the world. It's definitely doing good to the world, but it also has to do, we need to do good, we need to do well for ourselves as well. So, this combination is important, and we start to see that. We saw an inflow, because we are changing the thinking about Transition Investing, we are already starting to see an inflow of $12 billion of net inflow, just in the last couple of months. Total assets under management right now, both on the equity market and on the bond market, is a little more than half a trillion dollars, which is chasing yields. This is the biggest change over here. If we are not going to be able to support returns, we're not going to be able to mobilize the private market.
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Christopher Hyzy9:19
Haim, that's been terrific. Thank you for all of your insights. And thanks for joining us on this 2026 Outlook program. Haim’s expertise on Thematic Investing and where technology may take us in the near and long-term, are so relevant for portfolio positioning. Now, let’s turn to Marci McGregor, Joe Quinlan, and Matt Diczok, for insights on what’s ahead for markets in 2026, and ideas to consider for your portfolio. Marci, Matt, Joe, welcome today, thanks for joining me. I want to talk a little bit about, as we wrap up 2025 as the flywheel hums heading into 2026 with some very good momentum here. Still a lot of things to unpack in terms of Transition Investing, digital infrastructure, et cetera, the entire buildout, not just of artificial intelligence, but other parts of that horizontal. Marci, let's first start with you. Where do equities go from here?
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Marci McGregor10:08
Well, the bull market just celebrated its fourth birthday. So it's natural to wonder where do we go from here. And while we've seen around a 90% return in the S&P 500, that actually pales in comparison to past bull markets. So we do think there's legs to run. But the drivers are going to be corporate profits, which have been growing for the last four quarters at a double-digit pace year-over-year. So that's a really positive story. But we're also seeing a broadening in corporate profits. If we take a look at the U.S. economy, artificial intelligence is driving this investment cycle. But it's also likely to boost productivity in the U.S. economy. So that’s going to be a major driver here as well.
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Christopher Hyzy10:45
Let's transition a little bit, Matt, to yields. We're talking about financing all of this. Any impact on the corporate sector from the yield curve perspective within fixed income in this big buildout?
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Matthew Diczok10:57
So within fixed income, we see a good opportunity for investors here. Yields are certainly so much higher than they've been for the past several years. But they're not too high that corporates can't finance themselves. We're seeing tremendous opportunities for corporates to come into the corporate debt market to finance this buildout. Investors are still hungry for yield. Looking to add yield where they can, and they're finding opportunities to put capital to work at companies that need the issuance.
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Christopher Hyzy11:18
And what we're talking about there that there's a lot of worries that there's new debt financing coming out there to build some of this. And you're starting to see international investors, as you said, the demand for those is very high. You still see demand there for the corporate side, from a financing perspective?
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Matthew Diczok11:35
We absolutely still see demand. It's been very interesting the last 10 to 15 years. There are a lot of worries in April, if you remember when the tariffs came out, that people were going to start selling treasuries or the dollar is going to lose its reserve currency status. You zoom out, six months later, we've seen continued inflows from international investors. We saw the 10 year, which was 5% earlier in the year, all the way back down to 4%. This is still the destination for global capital in the U.S.
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Christopher Hyzy12:01
Now, Matt, you talked about 5% on the 10-year coming down to where we're at, close to 4% or so. Very different than what we saw when we first saw the Federal Reserve cut rates before the pause. Everyone was worried that this time around, if they cut, yields are going to go back up. We're not seeing it right now.
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Matthew Diczok12:18
We're not seeing that. Generally, the driver of long-term rates is what is the Fed doing with short-term rates. And the Fed is most focused on two things, keeping inflation in check and keeping employment in U.S. high. You got those two jobs. They are way more focused right now on keeping maximum employment. Keeping the consumer in good shape, keeping businesses running, than they're concerned about inflation. That's very positive both for fixed income because they're probably going to cut rates, potentially, this year, but more likely three or potentially four times next year, according to the market. But that's also good for equities.
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Christopher Hyzy12:51
So Matt talked about worries. Talked a little also about the potential that the international community or the investment community was worried that there would be selling of treasuries from foreign central banks or international investors. What is actually going on, Joe, and any effects on gold?
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Joe Quinlan13:09
They are, central banks, diversifying into gold, but not dramatically, very slowly. It’s illiquid, they've got to cover things overnight. So the dollar still has a good bit. You know, during April, during all the volatility globally, related to tariffs, there was about $10 trillion spent overnight in foreign exchange. The dollars on 90% of either the bid or the ask. So the central banks are diversifying but the dollar is still their core holding.
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Christopher Hyzy13:33
Marci, let's dive a little bit into sectors and valuation. Two areas that our clients and investors focus on quite a bit, regardless of what cycle we're in. What are our thoughts there?
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Marci McGregor13:44
Valuations matters, but it's not the only factor when you think about portfolio construction. So our overweight position in equities is we would like to be really well-diversified. But it's really driven by our view that earnings are growing. So when I think about it, it's U.S. equities relative to the rest of the world, again, that fundamental earnings driver, earnings revision ratios or analyst estimates looking forward are higher in the U.S. than the rest of the world. And we like sectors like financials. We like utilities because we're seeing this broadening in corporate earnings. It's not just about tech in the Mag 7 anymore. It's about this broadening. We're seeing more sectors have double-digit earnings growth each quarter. And that's a real positive. But small cap companies, they exited their earnings recession recently. But I think small caps can also benefit from interest rates that have been drifting lower. And I think that's going to be a key driver. So we want to be really well-diversified, but continue to like U.S. equities relative to the rest of the world. And earnings is underpinning that view.
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Christopher Hyzy14:43
Closing the gap, small caps finally, at least in the back half of the year. Speaking of closing the gap, we have a big gap on the private side of the equation as it relates to infrastructure. Let's talk about private markets and the infrastructure opportunity. What are you seeing there?
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Marci McGregor14:59
For new money being invested, we like venture and growth equity strategies. Now it's our view, if you take a big step back and think about the innovation that's going on as an undercurrent in the world we live in, I would argue that a lot of these companies, the leaders of the market in a decade or two decades, are really in their infancy on the private market side, especially, if investors are concerned about valuations, maybe in the Mag 7 or public markets, look at the leaders of tomorrow. And I think the venture growth equity space for qualified investors is a really interesting space.
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Christopher Hyzy15:32
So Joe, we've talked a lot about power infrastructure, artificial intelligence build out. It seems like it's every major headline now, but what's not talked about enough, at least in a positive tone, is the consumer. Take us through the consumer, who's driving what when it comes to consumer spending?
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Joe Quinlan15:48
Well, Chris, you said at the outset that the boomers are spending and they are. This country has never been wealthier household net worth $175 trillion. But here's the kicker. And here's the problem, potentially too, higher income households are driving spending, lower income households, we know from Bank of America Institute, they're struggling. So to bifurcated consumer, that's going to continue into 2026. But when you got a bull market in equities, tremendous home appreciation, unemployment rate below 5%, consumers high and low are going to be out there spending. So this story continues. And another big theme is the outperformance of non-dollar assets, particularly, the equity markets overseas, whether it's emerging markets or the developed world.
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Christopher Hyzy16:30
Is the growth going to be there in '26 and '27, to continue this size of the outperformance?
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Joe Quinlan16:35
Not in like, say, South Korea, which is up around KOSPI 75%. Don't expect that to happen again. Europe a little different. Defense spending is driving it more value. Luxury is coming back. China tech has got its own kind of thing going growth. And then when you look at Japan here against defense health care. So really, pick your spots carefully. But I would say, at the end of the day, it's still the U.S. in front, leading the train.
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Christopher Hyzy17:01
So Matt, let's switch over to a portfolio strategy from a fixed income perspective. Given what you said about the Federal Reserve and where we're going with monetary policy, what you talked about in terms of where yields are, what should investors and our clients consider heading into ‘26? And what if you look back on the full year from 2026, where do we see things going?
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Matthew Diczok17:21
So the first and most important thing for our investing clients is that they have to understand that fixed income is longer-dated fixed income, five, six, seven years, not cash. Cash over longer periods of time will reliably, underperform fixed income and underperform equities. Generally, cash just keeps pace with inflation. And so the major thing for clients is to stretch out from cash where appropriate, get to a diversified, longer-term fixed income portfolio. So think about a physician and Hippocratic oath, first, do no harm. Think the same thing about our clients. Be very prudent with their capital. If we don't see great opportunities in sectors, we're not going to be over and underweight sectors. So we're relatively neutral. We would say, however, for our high tax rate clients, the municipal market looks extremely attractive, at the moment, in our opinion, particularly, in the longer end. For example, longer-end munis right now about 4.5%. So for some clients, who may approach close to 50% total tax rate, federal and state, that's the equivalent of 9% pretax equivalent yield. That's a high yield for an investors grade municipal type portfolio. For those clients, some longer term munis portfolio would certainly make sense.
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Christopher Hyzy18:26
So we just all released collectively as a Chief Investment Office, The Great Eight, two of which are pretty bold statements. One, being this could potentially be the beginning stages, again, of one of the greatest investment cycles ever. And two, within that, the S&P potentially doubling from the levels of summer of 2025 out six to seven years. Within the remaining six, Marci, what resonates with you?
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Marci McGregor18:56
The two that I would think about are the ones that really look to the big cycles. So one, the question that's in front of everyone's mind, is AI in a bubble? We would push back on that and say, no, we're building the digital infrastructure of tomorrow. And then the second one is on the private market side where venture growth equity strategies are really incubating. I would argue the market leadership of tomorrow, that's where we're seeing the next big mega-cap tech companies being born.
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Christopher Hyzy19:26
Right, very deep roots. Matt, how about yourself?
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Matthew Diczok19:29
The two I'd pick is, first, yields being range-bound over the next couple of years, right? We've seen this massive change where rates finally got to above inflation, more normalized, the fed no longer buying bonds. We think their base get the right level right now, that's kind of where they should remain. But as the conservative bond guy, you know, I got to bring up premium valuations. Of course. We actually think premium valuations are going to stay. We've got a Congress that continues to spend. We have an executive administration that wants deregulation and tax cuts. And we have a fed hyper-attuned to risks in the market. This is a reason that premium valuations might actually be anticipating more economic growth and might stay premium for a while.
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Christopher Hyzy20:07
Joe, what are the final two?
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Joe Quinlan20:08
Productivity and gold, Chris. Now productivity first, in the sense that US companies have done a phenomenal job managing their ways through the pandemic, geopolitics, the spike in inflation, changes in administrations, tariffs. So I think the productivity boom in front of us, keeps earnings better than expected and higher expected returns. Gold is a diversifier, debt deficits, demographics. You want that part of that of your portfolio. Because we do have sovereign debt. Some issues higher deficits debt working their way through, we have gold diversifier. So that's the great eight.
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Christopher Hyzy20:41
So final question Joe, let's start with you. One word to describe all of 2026, what is it?
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Joe Quinlan20:48
Affordability.
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Christopher Hyzy20:49
Matt?
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Matthew Diczok20:50
Opportunity.
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Christopher Hyzy20:50
Marci?
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Marci McGregor20:51
Innovation.
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Christopher Hyzy20:52
I want to thank you all for joining me today. And thanks to all of you for taking part in this program. I hope it’s given you some good ideas to consider for your long-term investment strategy. Here are a few takeaways. The economy is sending positive signals, we believe, set up a dynamic year for equities. 2026 looks like, it could be a year of powering into a new era of potential growth, based on fundamental themes, like AI innovation, energy transformation, new infrastructure, and redeployment of human capital. For investors, we think now is a time to consider putting excess cash to work. There are risks. Stocks may feel overvalued and unforeseen events could alter the economic or market outlook. But the biggest risk may be missing out on future growth by waiting for the “perfect time” to enter markets. Once invested, stay invested for the long-term. Diversify across and within asset classes to help protect against short-term volatility and stay focused on your goals. An advisor can help you consider the options and design a portfolio for your situation and needs. Thanks again for joining us today, and we look forward to seeing you again soon.