The bank's strategists differentiated between stocks that could see returns in high versus low inflation scenarios. Commodities companies like Freeport-McMoRan, Mosaic, and Devon Energy have a strong positive relationship with inflation, while consumer-facing companies like Amazon, Best Buy, O'Reilly Automotive, and Clorox show a negative relationship. The bank also warned that central bank rate hikes have disrupted cost of capital assumptions, posing a bearish risk for earnings growth. However, they suggested that rising borrowing costs could be offset by improvements in labor efficiency and artificial intelligence.
Key takeaways:
- Bank of America strategists have identified de-globalization, inflation, and rising borrowing costs as key themes for investors to monitor amid bearish headwinds.
- Despite these challenges, the bank sees reasons for optimism, including the potential for certain stocks to benefit from a shift towards energy independence and the return of production mechanisms to the US.
- Inflation's future is uncertain, but the bank identified stocks that could see returns in high versus low inflation scenarios, with commodities companies showing a positive relationship with inflation and consumer-facing companies showing a negative one.
- Bank of America warned that rising borrowing costs could negatively impact earnings growth, but improvements could come from labor efficiency and artificial intelligence.