Fed May Be Lagging on Rate Cuts, BofA Forecasts Global Stock Market to Rise

Bank of America strategist Michael Hartnett said the global central bank easing cycle, which is faster than the Federal Reserve, could help economic growth recovery and lead to a broader stock market rally.

Hartnett's team said the market breadth "remains poor", noting that the U.S. S&P 500 index has performed strongly relative to equal-weight indices and other international stocks. But if global business activity picks up, the concentration of best-performing stocks could start to broaden more generally.

The U.S. stock market has surged over the past two years, outperforming international markets on the back of the AI boom and strong economic growth that boosted profits. But so far this year, European stocks have led, as investors expect President Trump's tariffs to be less stringent than initially anticipated.

Hartnett sees a catalyst for further risk-taking in gold hitting $2,800 an ounce and the NYSE composite index breaking above 20,500 (2.6% above current levels). He and his team have repeatedly said in recent weeks they prefer stocks in Europe, China and emerging markets as policy eases there.

For now, strategists see a "virtuous cycle" in the U.S. where rising stock prices translate into wealth gains, which are then re-invested in risk assets. This is the "self-fulfilling catalyst of the 'American exception'," Hartnett wrote.

On the stock fund flows front, U.S. equity funds saw $7bn of inflows in the week ended Wednesday, while European funds saw $200m of outflows and emerging market equity funds saw $3.4bn of redemptions.