Midyear 2026: The pace of change accelerates

As powerful new forces pick up speed, the risks are real, but so are the potential investment opportunities. These ideas could help you stay on track.
June 23, 2026
By the Chief Investment Office, Merrill and Bank of America Private Bank
With the first half of 2026 delivering one geopolitical and economic jolt after another, investment markets have been notable mainly for their resilience, rebounding from sharp volatility to reach new highs.Footnote 1
"Sound economic fundamentals are enabling markets to see past today's turbulence to potentially transformative growth ahead."
— Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank
Investors absorbing nonstop news on the Middle East, oil prices, U.S.-China tensions, tariffs and more may wonder what's holding markets up and whether a big letdown is inevitable. "While it feels like a disconnect, markets aren't ignoring bad news," Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, believes. "Instead, sound economic fundamentals are enabling markets to see past today's turbulence to potentially transformative growth ahead."
Here, Hyzy and other leading analysts from the Chief Investment Office (CIO) answer key questions heard from investors about what's next for the rest of 2026. You'll find actionable insights to help you keep pace with changes poised to transform the markets. Then be sure to watch the 2026 midyear webcast: "Shifting gears: New drivers of potential market expansion." For a deeper dive, read "The era of transformation: Part 1, R you ready? (PDF)" and "The era of transformation: Part 2, R you ready? (PDF)"

Go straight to the questions top of mind for you:

Q: What could geopolitical unrest mean for the markets going forward?

"At a time of elevated risk, investors should expect volatility, choppy trading and a potential slowdown in economic growth moving through the summer to the end of the year," Hyzy says. Yet three "Rs" that have buoyed markets through recent disruptions remain in place:
The three R's
  • Robust corporate earnings. Double-digit gains over the past several quarters have strengthened corporate resilience and operating leverage.
  • Rotation across equities. After years of big tech dominance, market performance has broadened to sectors such as materials, financials and industrials, plus smaller and non-U.S. companies.
  • Resilient consumers. Spending continues, thanks to higher asset values and wage gains. Other positives include incentives and stimulative measures in the 2025 One Big Beautiful Bill Act (OBBBA), and potential interest rate cuts by the Federal Reserve (the Fed) next year.
"We see periodic weakness as a potential buying opportunity as markets focus on long-term growth themes such as AI innovation, infrastructure replacement and re-industrialization," Hyzy says. Another potential long-term theme for investors: the defense supercycle, as Europe raises military spending and the U.S. and China enhance traditional defense systems with AI and robotics.
Risks to consider: Geopolitics is inherently unpredictable, Hyzy says. "A sharp setback in an existing situation or a new crisis could change the short-term market outlook without notice."

Watch "Geopolitical volatility: Defense, energy and metals" for more tips and insights

Video: Geopolitical volatility defense, energy and metals
Press enter to play 'Geopolitical volatility defense, energy and metals' video
[Music plays through opening title sequence.]
On screen disclaimer:
Please read important information at the end of this program. Recorded on 03/26/2026.
Chris Hyzy
For decades, investors assumed globalization would reduce costs, smooth supply chains and dampen volatility. Today, that assumption no longer holds.
On screen copy:
Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
Hi, I'm Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. We're observing in real time how rising geopolitical tensions, energy shocks, and supply-chain disruptions can expose just how fragile critical systems really are. National security and preserving economic interests are increasingly dominant drivers of capital intensity, a theme the Chief Investment Office has called a defense super-cycle.
On screen copy:
Haim Israel
Head of Global Transition and Thematic Research
BofA Global Research
Now to help understand what this fragmented world means for investors, I'm joined by Haim Israel, head of Global Transition and Thematic Research for BofA Global Research.
Chris Hyzy
Haim, the world is very volatile. Geopolitical risk is at its highest level. But in terms of where we are today, how is the current military conflict, and coming out of Ukraine and Russia, affecting the investment landscape from your perch as a relates more or less to security?
Haim Israel
It's not just security. There's a fine line between the corona pandemic, the Ukraine situation and the current conflict in the Middle East. We've seen a world that is being deglobalized. We've seen a world that countries are getting more and more isolated, thinking about their own resource, their own supply, their own independency from a macroeconomic and geopolitical perspective. And we see a race over those resources, over technology, over human capital, over everything that we see right now. The conflict in the Middle East we're seeing right now is a continuation of what we have been seeing in Ukraine. What we've seen geopolitically lately, and we're seeing this trend is here to stay.
On screen copy:
Global military spending reached $2.7 trillion in 2024.
Source: BofA Global Research, "The ABCs of Transition Investing," Sep. 30, 2025
Haim Israel
The world of AI, the world of technology imposes a lot of risk, imposes massive need for resources as from human capital or financial assets to natural resources, energy, and so on and so on.
Chris Hyzy
Can you talk about the defense super-cycle we're going through right now in relationship to the ones that we had prior?
On screen copy:
NATO members expected to increase defense spending from 2% to 5% of GDP by 2035.
Haim Israel
Of course. So I think it's changing. So of course, obviously we are seeing more and more expenditures. We see NATO announcing on $1.3 trillion of investment. We see countries like Germany and others in Europe that have increased their spending to more than 5% of GDP. So that is the obvious part, and I think this trend will continue — part of the independency theme that we've been talking about. Countries need to take care of their own. We are seeing the risk.
But the second part of it, which we think is actually more interesting, is what we are spending on. You can call the conflict in the Middle East the first AI conflict. AI is taking a part of this conflict from cyber security, from defense and analytics, from intelligence, from the weapon systems. Everything is so much more complicated, smarter and using AI. And this cost money.
Now it's spending on defense tech, which is so much more complicated than it used to be in the past, because in the new battlefield you need an edge. The real value for investors is actually going to go to defense tech, where AI can start meeting the traditional defense systems. In the future, we're probably going to talk about more robotics, humanoids, and automation. But it's, it's you need to think about as the first AI conflict.
Chris Hyzy
Yeah, we're starting to see capital actually accelerate into those areas. We saw it in the past in terms of the initial outlay of investment in those areas to build it out, but now it's becoming a little bit more of a flywheel. And if we take that concept and we move it over into a more traditional end of so-called geopolitical conflict, it's energy. It's energy security. We talk about energy security today in the context of the world still needs energy, oil and gas and how important that is.
Haim Israel
So we've been saying for quite some time that energy probably is going to be the new weapon, especially after we saw the invasion of Ukraine and now the Hormuz and the Middle East, we are understanding the factor about how much energy is important. And energy wars all over the world.
Now you have to talk it with the theme, again, of technology, of AI, of the needs. We will need so much more energy in the future, even in peaceful times. Now, what we've seen is that investments in energy have started and they start a lot. And the demand is going through the roof.
On screen copy:
Roughly 83% of the world imports oil for energy.
Haim Israel
Remember one thing: 83% of the world is importing oil is not exporting oil, and more than 25% of this export is actually going through the Hormuz. So we understand the problems that are happening right now. Renewable energy is the solution.
On screen copy:
Renewable energy is roughly 25% cheaper than fossil fuel.
Haim Israel
It is cheaper, 25% cheaper energy unit versus fossil, especially now. Now it's actually even higher than that. And we need to remember one thing. This conflict hopefully is going to be over at one point. But the problems of energy demand are just going to increase. I'm a big believer that more and more countries will pursue other solutions of energy, and not necessarily fossils. So we are still big believers on renewables.
On screen copy:
SMRs = Small modular reactors
Haim Israel
We are still big believers on nuclear, SMRs is a long-term technology. If I take a more long-term up to, all the way up to nuclear fusion. And those are going to be the big winners long term over here.
Chris Hyzy
Critical minerals supply chains. Talk to us in the context of how important those four words are.
On screen copy:
Roughly 83% of rare earths are controlled by China.
Haim Israel
Right now, we understand how fragile the supply lines of critical materials are right now. It's not just the mining. 83% of rare earth metals are controlled by China, directly or indirectly. So yes, maybe lithium is mostly mined in Chile or in Canada and Australia, but the refining of it is still being done in China.
A big part of it is actually going through the Hormuz and we see the supply lines are very, very fragile. Going back to this world of security. We will see development of new resources. We will see development of new assets. And trying to go to two ways. First of all, I need to develop completely new systems.
So part of it is going to be with technology. No one told us that we need to use lithium for our batteries. Did you know, Chris, that butter — butter, the one that we make cakes and bread with — holds ten times more energy density than lithium. But for some reason we're using lithium. Technology can help us to move to other materials and other minerals that we can use in different ways.
I'm a big believer that part of the reason that we're investing so much in AI, all those trillions of dollars, is actually help us to come to a completely new systems and materials which are going to give us independency, which are going to reduce our reliance on traditional natural resources.
But long term, like energy, countries are going to move to completely different solutions and going to start using technology for these solutions.
Chris Hyzy
Now, in my almost three and a half decades of studying investing time, I have never seen butter in a portfolio. Now, having said all that, in the context of energy security, defense super-cycle, critical minerals supply chain, how should we think about these megatrends and subthemes in the context of portfolio positioning?
Haim Israel
Think about the big picture.
I always urge to stop focusing on the short term, stop focusing on the quarterly numbers or the short term trends that we're seeing right now.
On screen copy:
Portfolio themes in a fragmented world:
  • Energy and resource security
  • Supply networks
  • Tech-enabled defense
We're heading into a world of massive investments. Investments, bricks and mortars are going to be big winners over here. We're going to upgrade our networks, our energy networks. Water networks, our natural resources supply lines. Everything is going to be upgraded and changed.
We're going to have to invest in completing new ways of energy. We have to invest in security. Security is not just traditional weapons securities are securities. Security is AI, security is cyber security, which is, as we've seen with the current conflict, is a pivotal part, exactly like airplanes and ships. And we have to invest in the new technology, around those, all those areas.
Chris Hyzy
Let's switch now a little bit to risks. We can't talk about geopolitical volatility without what risks should we all know about?
On screen copy:
Geopolitical volatility risk factors:
  • AI race heats up
  • Fracturing of superpowers
  • Water usage
  • Resource demand-driven inflation
Haim Israel
So well, we believe that those are what we call the AI wars will continue the race over, resources will continue, and we'll see more and more and more, more fractures between the superpowers and those fractures of not just, of course, U.S.-China directly. We've seen them all over the world. And and we are seeing that the United is trying to limit access of China to technology.
As a result, part of the risk is not just trying to get this technology, but actually this is going to be a race for technology, We are seeing race over AI models. Semiconductors. The one area which I would highlight as a big risk worldwide is water.
No one really is talking about how much water data cities are consuming right now. Two thirds of the planet is facing severe water shortages because of the I.T sector, So that's going to be another major risk that we are going to see over here.
One of the long term risk is, of course, right now we're heading into an inflationary environment. Prices of commodities are going up. Whereas materials the the rush after every critical materials is is inflationary.
Chris Hyzy
If you think about one major takeaway in the context of how capital is flowing and investments in general, what would that be?
Haim Israel
We build our world in the 50s, Chris, after World War two. We topped it with some software in the 90s during the internet revolution. We topped it with a little bit more hardware in 2010, with the mobile revolution. We need to rebuild everything right now.
Think about the infrastructure, think about the entire ecosystem of this infrastructure. By the way, infrastructure is also security. Infrastructure is resources. Infrastructure is energy. Everything is about to be rebuilt and everything is part of this AI revolution.
Chris Hyzy
Rebuilding infrastructure in the long run is very growth enhancing, at least in our view. Thank you for joining me today.
Haim Israel
Thank you very much, Chris.
Chris Hyzy
Rebuilding infrastructure in the long run is very growth enhancing, at least in our view. Haim, thank you for walking us through these powerful themes and how they're reshaping the global investment landscape. In a world defined by fragmentation rather than integration, portfolios need exposure not just to growth — but to resilience, security, and strategic assets. As always, we encourage you to continue the conversation with your advisor, if you work with one, about how these themes may fit into your longterm strategy. Thanks for watching, and we'll see you next time.
On screen Disclosure:
The opinions expressed are as of 3/26/2026 and are subject to change.
Investing involves risk, including the possible loss of principal.
Past performance is no guarantee of future results.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. Investments in foreign securities involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
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[End of transcript]
[-] Close transcript

Q: Has the Iran conflict increased the risk of stagflation — and what would that mean for interest rates?

The conflict-related spike in oil prices, combined with a soft hiring market, has raised fears of 1970s-style stagflation, when prices stay high even as the economy slows. "Those factors, while concerning, don't point to stagflation, in our view," says Joe Quinlan, head of Market Strategy for the CIO.
"While the spike in energy prices will likely show up in higher inflation in the next few months, longer-term inflation expectations remain anchored and are expected to improve on AI-related productivity gains."
— Joe Quinlan, head of Market Strategy for the CIO
As a net exporter of oil, the U.S. is energy self-sufficient and less vulnerable than other countries to supply disruptions, Quinlan notes. "While the spike in energy prices will likely show up in higher inflation in the next few months, longer-term inflation expectations remain anchored and are expected to improve on AI-related productivity gains," he adds. "And when the Iran conflict ends, oil prices could quickly drop to below prewar levels."
Another clue may be found in credit spreads — the difference in yield between bonds of similar maturity but different credit ratings (for instance, U.S. Treasurys versus corporate bonds) — which tend to widen when markets anticipate a slowdown. "Spreads remain at the low end of their historical range," says Matthew Diczok, head of Cross-Asset Market Strategy for the CIO. "If stagflation were around the corner, they would be well above their normal levels."
Risks to consider: Stagflation risks would rise if the Iran conflict lasts well into 2027. Higher energy prices could eventually reignite inflation, prompting the Fed to maintain or raise interest rates even as business costs rise and consumer spending stalls. BofA Global Research recently revised its expectation for two rate cuts later this year; it now expects that the Fed will not cut rates before the second half of 2027, notes Diczok.

Q: Is AI still a potential growth opportunity — and when will it lead to increased productivity and return on investment?

Excitement about AI has given way to questions of whether the massive capital investment (expected to surpass $1 trillion in 2027)Footnote 2 will truly pay off. "It's a classic part of the cycle for any major innovation," Hyzy says. "People want to know when AI will be monetized."
While such concerns may contribute to short-term volatility, "AI is already starting to drive profound advances across the economic landscape," Hyzy says. "Companies early to embrace its labor-saving potential are realizing greater cash flow per employee." Physical AI promises a next leap forward in commercialization, moving beyond the digital world of software into real-world machines such as robots, drones and automobiles. With $41 billion invested in 2025, physical AI can automate dangerous tasks in areas like warehousing and manufacturing and ultimately assume more complex operations.Footnote 3 "As these technologies advance, we expect productivity gains across industries to accelerate over the next two to six years," Hyzy says.
Risks to consider: "Regulation, stock overvaluation, supply chain disruptions, geopolitics and a backup in yields may cause temporary pauses in AI enthusiasm," Hyzy says. "We suggest a broad-based, long-term approach to this potential opportunity, as opposed to investing in individual stocks in the hopes of quick returns."

Q: How much volatility can we expect leading up to November's midterm election?

In a year of surprises, the 2026 midterms offer one predictable source of market disruption. "Historically, volatility rises during the summer as campaigning intensifies," says Lauren Sanfilippo, senior investment strategist for the CIO.
Did you know: Since 1938, the S&P 500 index has never declined in the 12 months following a midterm election.
Source: Chief Investment Office, "Uncertainty now, better foundation later," April 2026.
Yet while the stakes are high, with control over the Senate and House of Representatives influencing everything from taxes and regulations to geopolitics, election-related volatility tends to fade quickly once the results are in, Sanfilippo says. Since 1938, the S&P 500 index has never declined in the 12 months following a midterm election.Footnote 4 "Any short-term dips related to the approaching election could provide potential buying opportunities for long-term investors," she adds.
Risks to consider: "As the media heat rises, keeping things in perspective may be easier said than done," Sanfilippo says. "Investors may need extra diligence to stick to long-term strategies and avoid sudden reactions to headlines."

Q: What strategies could help investors minimize the effects of volatility this year?

"We continue to emphasize stocks over bonds, and U.S. equities in particular," says Marci McGregor, head of Portfolio Strategy for the CIO. "But with higher volatility expected through the balance of the year, staying diversified across and within asset classes can help to minimize possible losses."
TIP: "With higher volatility expected through the balance of the year, staying diversified across and within asset classes can help to minimize possible losses."
— Marci McGregor, head of Portfolio Strategy for the CIO
Within stocks, potential long-term opportunities may be found in cyclical industries such as industrials, which includes aerospace, and financials, as well as small- and mid-cap companies, which may outperform more defensive stocks such as utilities and consumer staples once the Iran situation settles. Outside of the U.S., emerging markets offer attractive valuations and a growing consumer base, and they have outperformed through the first half of 2026, McGregor says.
Diversifying with bonds remains an essential strategy for weathering volatility, Diczok says. "Global capital continues to flow into the U.S., and real yields remain meaningfully higher than other large economies," he adds. With countries vying for precious metals to power the new economy, investors also may want to explore gold and other commodities. "But be sure any decisions align with your long-term goals and risk tolerance," McGregor says.
Risks to consider: Choppy markets can throw even carefully built portfolios off kilter, leaving you over- or under-exposed to various asset classes. Rebalance regularly, especially after periods of volatility, McGregor suggests.

Next steps for investors

While the crosscurrents running through the economy and markets these days can feel confusing, things get clearer when you step back and think of investing in terms of your personal goals and what you're hoping to achieve, Hyzy says. "If you work with an advisor, they can help you keep volatility in perspective, adjust your portfolio as necessary, and stay invested so that you don't miss out on the period of potentially transformative long-term growth that could lie ahead."

More for you

Footnote 1 CNBC, "S&P 500 closes at a fresh record as stocks catch a tailwind from falling oil prices," May 5, 2026.

Footnote 2 CNBC, "AI boom: Big Tech capital expenditures now seen topping $1 trillion in 2027," April 30, 2026.

Footnote 3 Bank of America Institute, "Physical AI, Part 1: The basics," Feb. 26, 2026.

Footnote 4 Strategas Research, Chief Investment Office, "Uncertainty now, better foundation later," April 2026.

Important Disclosures

The opinions expressed are as of May 28, 2026 and are subject to change.

Investing involves risk, including the possible loss of principal.

Past performance is no guarantee of future results.

Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Stocks of small-cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice-versa. Investments in foreign securities involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets.

Alternative investments are intended for qualified investors only. Alternative Investments such as derivatives, hedge funds, private equity funds, and funds of funds can result in higher return potential but also higher loss potential.

This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
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