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April 23, 2025

Timely answers to your volatility questions

Another week, another round of volatility. With markets continuing their wild swings on April 21, investors in search of stability have some big questions: Are we past "peak uncertainty"? What's ahead for the economy? How can I manage my portfolio?
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Please read important information at the end of this program. Recorded on 4/22/2025.
Lower third:
Marci MacGregor
Head of Portfolio Strategy for the Chief Investment Office
Merrill and Bank of America Private Bank
Marci McGregor
Hello, I'm Marci McGregor. I'm here with Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. We know you have a lot of questions about the steep and ongoing volatility. I'll be asking Chris for his perspectives on markets, the economy and how investors can respond. So let's jump right in. Chris, thanks for joining me today.
Chris Hyzy
Thanks for having me, Marci.
Marci McGregor
So one of the biggest questions people are asking is when will this volatility end? When will markets find a little more stability? So let's start with what's your take? Have we passed the point of peak uncertainty? And what are you watching?
Lower third:
Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
Chris Hyzy
Well, I think first we have to recognize that things are still very complex, very complicated overall. We really haven't passed a big milestone, except peak uncertainty. It is our belief we've passed peak uncertainty, which hit right around April 8th. So when the fear gauge, known as the VIX, from the Chicago Board of Options Exchange, as we know, hit over 60.
The ten-year yield started to go up pretty precipitously. There was some fear in the bond market, not just the equity markets. The currency markets, it all coalesced right around 3 or 4 days around that time frame. We just about hit bear market status in the S&P 500 as well. But the most important thing there is to remember that when fear is at its highest level, there's an unknown factor that continues on for a little while.
So from our perspective, we look at it in four phases. You have a reset phase. When something comes in, you have a deleveraging event. That's just a fancy way to simply say there was too much money in one corner of the market, not just the equity market, but also in the bond market. And there was also a movement out of that, at the same time.
[On screen chart]
The Chief Investment Office Nine Stages of Market Uncertainty To Recovery
Reset Phase
  • Unforeseen event unfolds quickly
  • Repricing of risk
  • Liquidity needs arise
Relief Phase
  • Policy action takes place
  • Significant relief rallies occur
Re-examine Phase
  • Period of choppy trade
  • Stable growth confirmation begins
Re-growth Phase
  • The climb back environment unfolds
  • A new normal builds
Source: Chief Investment Office as of April 11, 2025. CIO views are subject to change. FOR INFORMATIONAL PURPOSES ONLY.
Chris Hyzy
When that happens, the fear gauge goes way up and you hit peak uncertainty. That's the reset phase. That's investors way of saying, I don't know about the future, but what I do know right now is it's completely uncertain. So you start to see a lot of the short-term speculators change their portfolios very quickly. And that's the proverbial statement, “Risk off.”
And then second thing, after the reset phase, you go into a relief phase, which is okay. Things a little bit more calm, but not totally calm. And then we were at the end of that a little bit, and we're about to go into what we call the reexamine phase. And then, finally, it's the regrowth phase. So just to reset the reset phase, heightened uncertainty, peak uncertainty.
[On screen chart]
The Chief Investment Office Nine Stages of Market Uncertainty To Recovery
Reset Phase
  • Unforeseen event unfolds quickly
  • Repricing of risk
  • Liquidity needs arise
Relief Phase
  • Policy action takes place
  • Significant relief rallies occur
Re-examine Phase
  • Period of choppy trade
  • Stable growth confirmation begins
Re-growth Phase
  • The climb back environment unfolds
  • A new normal builds
Source: Chief Investment Office as of April 11, 2025. CIO views are subject to change. FOR INFORMATIONAL PURPOSES ONLY.
We've passed that. The relief phase is right around now into the summer months. Reexamined. What kind of environment are we in? That's like the third, fourth quarter and regrowth phase in our opinion, is next year.
Marci McGregor
So we've passed peak uncertainty. I like to think of it as a fog, though, that's still lingering for us as investors. So, if we think about the U.S. economy, what are the prospects for the U.S. economy?
Chris Hyzy
Well, the economy, obviously, we think about it as an engine. It produces the growth and ultimately the corporation produces earnings growth and revenues off of that so-called flat line area or movement up, which is what we saw in 2024. If you step back a second, right now, it's very difficult to forecast the next 12 months. We have complete uncertainty still on the tariff front, but we also have uncertainty as it relates to how foreign investors view U.S. assets right now.
Chris Hyzy
You put those two equations together. We still feel like the U.S. can actually produce about 1.5% real growth for this year. The International Monetary Fund believes the globe can grow at about 2.8 or so, but we expect different forecasts to be fluid throughout the year. And then on an inflation front, a little bump up in inflation because of the tariffs before you start to come down because of a potential demand shock next year.
The good news is this: everything that we can see in terms of the consumer is stable. They're spending at the same clip as they traditionally do on a normal basis right now. The job market is still relatively healthy, and we're not seeing signs that the soft data sentiment is moving completely into the hard data, we'll be watching that very closely.
Marci McGregor
How long might stock and bond markets remain in this limbo period we're experiencing of heightened volatility?
Chris Hyzy
We have to look at what drove us down first which is the uncertainty, primarily, over tariffs. But we started to see a slowdown late last year in some of the bigger names that drove the massive outperformance of the S&P 500, and we need to see some of those earnings come back a little bit. We don't expect that until later in the year and into 2026.
But starting right now, this limbo period should last into the summer months. This is where, as we discussed earlier, the reset to relief, to reexamine, to regrowth. So you're still in that so-called relief to reexamine phase through the summer months and into the third quarter.
Marci McGregor
How should investors prepare for volatility to potentially continue? And maybe more importantly, how do we as investors prepare for a return to normalcy? The other side of this?
Chris Hyzy
Right. Well, they say volatility is the price you pay when you're investing in equities. It's the toll you pay. And over time volatility can be your friend. We'll get on that in just a second. But having a diversified portfolio, according to your risk profile, making sure you reset or reexamine your objectives. If it's long-term growth, understand how your portfolio can produce that.
So, for instance, equities it's a long duration asset. You need to see earnings and profits pull through over the long run because that's what drives returns over the long run. And if you have a long-term time horizon, having more equities than fixed income makes sense. And you rebalance during times of fear. So having a diversified portfolio, using equities for long-term growth, and potentially total return, if you're using dividends as well.
Marci McGregor
So in periods of volatility, I often say it's a time to take a step back as an investor, maybe get your shopping list ready. So what areas of equities and fixed income could potentially benefit from this period of volatility we’re in?
Chris Hyzy
This is where it gets a little interesting. The markets, you know, as of this date are down about, on average, the S&P 500 is down about 10% or so. But the sliver of the market that drove the S&P over the last few years, the largest mega-cap technology names, some cases known as the Magnificent Seven, are down about 20%.
They have a big portion of the market and they're putting pressure down on it. But if you look at Europe, Europe's up about 21% according to the Euro Stoxx 50, which is one of the biggest outperformances we've ever seen, Europe relative to the U.S., half of which is coming from a weaker dollar. So when you think about that for a second, what are the areas that have been shielded from the biggest uncertainty, which has been tariffs and the potential risk of a recession, has been the non-U.S. markets, mostly because the dollar's been weak.
So we still have a neutral outlook on non-U.S. markets. So those are the areas that should have less volatility going forward. In the U.S., the areas that should have a relief rally over the course of the next summer, the summer months, particularly the areas that have been harmed the most, and that's areas of semiconductors, the mega, mega technology areas.
Lower third:
Non-U.S. markets could experience less volatility in the coming months.
Chris Hyzy
And then the financials, those areas have also corrected a little bit too much as far as we're concerned. And those are the areas that we see can lead us out of this.
Marci McGregor
Thanks for these timely insights. Any closing thoughts you want to leave with our clients?
Chris Hyzy
You know we always say this, be as diversified as possible. Eyes on the road ahead. Oftentimes when you have the worst days, they're followed by the best days. If you're out of the market and you miss the best days of your return potential, significantly curtailed. All of that continues to this day. However, it's also important to step back and look at the fundamentals.
Lower third:
Remember: stay diversified and stay disciplined.
Marci McGregor
And stay disciplined.
Chris Hyzy
Always stay disciplined.
Marci McGregor
Thanks for joining me today, Chris.
Chris Hyzy
Thanks, Marci
Marci McGregor
In times of steep volatility, the greatest challenge for investors, and the most important, may be to stay calm. Look past the daily noise and focus on your long-term goals. We hope this video has been helpful. If you work with an advisor, now may be a good time for a conversation. And check back here frequently. We'll keep you updated as markets and conditions evolve.
Thanks for watching.
On-screen disclaimers:
Important Disclosures
The opinions expressed are as of April 22, 2025, 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 foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
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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
Watch the video above as Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, shares perspectives on these and other pressing issues with head of Portfolio Strategy Marci McGregor.
Check back here for frequent updates on markets and the economy and tune in to the CIO's Market Update audiocast series for latest CIO insights.
April 15, 2025

Tariff update: Why investors shouldn't bail on bonds

As uncertainty around tariffs continues, churn in the equity market has been the primary focus for many investors. But the bond market is signaling equally if not more troubling signs that tariffs could do damage to the global economy. "Investors like to think of the bond market as boringly predictable. You can't say that right now," says David Litvack, tax-exempt strategist for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank.
Normally, during heightened volatility, as the price of stocks drops investors flee to the perceived stability of bonds, and bond prices rise. During this latest bout of tariff-related volatility, however, investors have been abandoning bonds, causing their prices to fall and yields, or interest rates, to rise. "In early April, just prior to the announced 90-day pause on across-the-board tariffs for many countries, the market saw a sharp selloff in Treasury bonds, causing yields to climb," says Marci McGregor, head of Portfolio Strategy for the CIO. That selloff has continued, creating signs of liquidity stress in the Treasury market. Such correlation between the stock and bond markets is rare, and was most recently seen during the pandemic, she notes.
Investors like to think of the bond market as boringly predictable. You can't say that right now. David Litvack, tax-exempt strategist, Chief Investment Office, Merrill and Bank of America Private Bank
What's behind the bond selloff?
Several factors could be causing investors to bail on bonds, says Litvack. The latest volatility may have prompted some investors to sell Treasurys for cash as losses in the stock market built up. Continuing uncertainty around tariff policies might be causing others to move towards investments outside the U.S. And, analysts believe, some selling may be the result of foreign governments' selling of Treasurys as a form of retaliation.1
Meanwhile, fears that Congress might soon curtail federal tax exemptions on municipal bonds has been driving a selloff in munis, say Litvack. A January House Ways and Means Committee report listed muni tax exemptions among more than 200 possible cuts that could help pay for renewing the 2017 Tax Cuts and Jobs Act, which is due to expire at the end of 2025.2
Rising yields could make bonds very attractive, leading to a potential rally ahead. Marci McGregor, head of Portfolio Strategy, Chief Investment Office, Merrill and Bank of America Private Bank
How investors can respond
Muni investors should view the selloff as a potential opportunity, Litvack believes. "Congress is now beginning to debate potential spending and tax cuts as they negotiate the administration's budget, and we believe muni tax exemptions will remain largely intact," he says. While some muni subsectors, such as bonds issued by colleges and universities, could be at risk, there appears to be bipartisan support for maintaining the exemption, he believes. "In the event that legislation is passed that reduces future tax-exempt issuance, that should increase the valuations of existing muni bonds, because of their scarcity."
"Fixed income is an important diversifier in any investor's portfolio — and diversification is critical during periods of volatility," adds McGregor. Should liquidity stress become a problem in the Treasury market, the Federal Reserve has tools in its toolkit to manage it, she believes. "And rising yields could make bonds very attractive, leading to a potential rally ahead."
For more on fixed income in today's markets, read the latest "Fixed Income Spotlight" and check out "Is the muni tax exemption at risk?" in the CIO's
March 31, 2025 Capital Market Outlook.
Footnote 1 CNN Business, "The bond market is acting weird. It spooked Trump," April 11, 2025.

Footnote 2 The Wall Street Journal, "Are muni bonds still a darling on Wall Street? It depends who you ask," April 2, 2025
April 10, 2025

Volatility continues as U.S.-China trade war escalates

Stocks fell sharply on April 10 after an historic surge the day before. Investors traded relief over a 90-day U.S. tariff pause on most countries for intensified worries over a newly announced 145% tariff on China and the potential for an all-out trade war between the world's two largest economies.Footnote 1
"Along with stocks, we've seen sharp bond volatility in recent days, including a selloff in Treasurys, causing yields to rise," says Marci McGregor, head of Portfolio Strategy for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank. "Shifting policies have created a fog of uncertainty."
Investors can take some control by preparing tactically for the short term and strategically for the long term. Marci McGregor, head of Portfolio Strategy, Chief Investment Office, Merrill and Bank of America Private Bank
A world of unknowns
As first-quarter earnings season begins, "Companies, unable to gauge what trade disruptions could mean for future earnings and capital investments, will likely remain guarded until they have more information," she says. Even in the best case — a U.S.-China reconciliation — corporate growth this year will likely be slower than previous expectations.
Yet some positive signs shine through the fog of uncertainty. "Cooling inflation data and strong labor numbers tell us the U.S. economy was on solid ground prior to the tariff announcements," McGregor says. And historically markets have recovered relatively quickly after the S&P 500 index has fallen into correction territory. "In all of the other five times that's happened since 1950, markets were up six months, a year, and two years later — with gains averaging 53.1% after two years."Footnote 2
Have a defensive plan — and a shopping list — ready
With market gyrations likely to continue amid these uncertainties, "Investors can take some control by preparing tactically for the short term and strategically for the long term," McGregor says.
Short term. "The next few months may be a good time to play defense," she adds. Investors might consider defensive stocks such as utilities, as well as dividend-paying and value-oriented stocks.
Long term. Looking ahead, investors can help position themselves for when the trade uncertainty recedes. "Have a 'shopping list' ready," she suggests. Volatility may offer a chance to buy assets that support your long-term strategy, at attractive prices. "Uncertainty offers potential opportunities to rebalance, especially if your portfolio drifts from your targeted allocations," she says. "Staying balanced and well-diversified is essential."
For more insights from McGregor on current market conditions, listen to the April 10 CIO Market Update audiocast, and check back here for regular updates.
Footnote 1 The Wall Street Journal, "Stock selloff accelerates as China trade war sinks in," April 10, 2025.

Footnote 2 CIO & Bloomberg, S&P 500 returns on a price basis. Data as of April 4, 2025.
April 7, 2025

Two possible scenarios as tariff uncertainties play out

Markets continued to swing wildly on April 7 as investors struggled to process a world of uncertainty over tariff policies.Footnote 1 "The U.S. tariffs announced last week were far higher than expected and based on formulas investors haven't seen before," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Market worries include a potential growth and demand shock to the economy, higher inflation and escalating trade wars, he adds. "It is possible now to expect 0% earnings growth for the year if all of these uncertainties last into the summer months," Hyzy says.
Considering the many unknowns, including retaliatory tariffs and possible negotiations underway, "It's impossible to gauge how long high tariffs might last, and what the endgame is," Hyzy says. While swift negotiations could reset tariff policies and support market recovery, an extended trade war raises fears of recession and stagflation — stagnant growth and higher prices. As events unfold, Hyzy notes, investors should avoid making sudden decisions based on headlines.
"At a time when new information is coming in every hour, it's important to have a plan and stay disciplined." Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank
What's next? Three signs to watch for
In the days to come, here are some possible developments the Chief Investment Office (CIO) will be tracking:
  • A changing narrative. "We'll need some positive news on trade deals and policy 'resets.' In order to stem the tide, you have to change the narrative that sparked the fear," says Hyzy.
  • Corporate earnings. "In the medium term, we need earnings to hold up better than expected," Hyzy says. "Lower oil prices and lower interest rates could help to balance out lower demand stemming from trade uncertainties."
  • Employment. "As of now, the job market does not support recession fears. We'll be closely watching employment figures in the coming months," he adds.
Two possible scenarios
"For the next six months-plus, we see two potential scenarios with equal likelihood," Hyzy says.
Scenario 1. Countries scramble to negotiate substantive trade deals that bring tariffs down. "Bond yields would stay low but drift up slightly, and equity markets would recover some of the losses, led by technology, financials and consumer discretionary sectors." Even in this positive scenario, economic growth will likely take time to recover.
Scenario 2. The global standoff continues without substantive trade deals until countries realize economies are heading towards recession. "We could see bond yields, oil prices and commodities fall and stocks take longer to recover. The worry shifts to a steeper and extended downturn in corporate earnings."
How you can prepare
With events so fluid, investors should prepare for further volatility as well as "positive surprises" as trade negotiations unfold, Hyzy advises. Exiting markets one day could prevent you from realizing gains if markets rebound the next. Now may be a good time to speak with your advisor if you work with one. "At a time when new information is coming in every hour, it's important to have a plan and stay disciplined," he says. Long-term investors may find potential opportunities to add to their portfolios during declines, Hyzy adds. You might also consider dollar-cost averaging,Footnote 2 which could enable you to buy relatively more shares at lower cost.
For continuing insights from Chris Hyzy on tariff-related volatility, be sure to listen to our latest CIO Market Update audiocast, and check back here for regular updates on market conditions.
Footnote 1 The Wall Street Journal, "Trump threatens additional 50% tariff on China," April 7, 2025.

Footnote 2 A program of regular investment cannot assure a profit or protect against a loss. A continuous or periodic investment plan involves investment in shares over time regardless of fluctuating price levels. You should consider your financial ability to continue purchasing shares during periods of low price levels.
April 3, 2025

Navigating tariff turbulence

What just happened? A tariff on nearly all U.S. imports, announced April 2, sparked a global stock plunge the following day.Footnote 1 In early morning trading, Dow futures were down 1,200 or, 2.8%.Footnote 2 The tariffs set a baseline of 10% but are far higher for many countries—including 34% for China, 24% for Japan and 20% for the European Union.Footnote 3
"Though asset markets have been preparing for some time, the announcement was more aggressive than consensus expectations," says Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank. A Chief Investment Office Investments Insights report, "Eyes Wide Open," analyzes the current situation and what may be ahead.
"Despite uncertainties that may last for weeks or months, we believe the U.S. economy will be able to stave off a recession in the near term." Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank
Our take on what this means
"We believe market volatility is here to stay until we better understand how all of this plays out," Hyzy says. Negotiations and deals among trading partners may lead to tariff adjustments and a settling of volatility, he adds. In the meantime, markets will likely experience a flight to safety.
"The largest concern now is the potential for a growth shock," Hyzy says. As yet unanswered questions include the overall impact on global trade, potential secondary shocks to the services sector and possible monetary policy effects, he adds. "Despite uncertainties that may last for weeks or months, we believe the U.S. economy will be able to stave off a recession in the near term." Corporate earnings, while potentially vulnerable to extended high tariffs, remain strong and U.S. consumers resilient, he believes.
How should investors respond?
"During this time of assessment, it is important to play both defense and offense," Hyzy suggests. "Stay calm, diversify, and build a plan to reposition and rebalance your portfolio to take advantage of the improved prices that this uncertainty has created."
Read the Investment Insights, "Eyes Wide Open." Check here for regular updates on market conditions and be sure to listen to our latest CIO Market Update audiocast.
Footnote 1 The Wall Street Journal, "U.S. Stock Futures, Dollar Tumble on Trump Tariff Plans," April 3, 2025.

Footnote 2 MarketWatch, "Stock futures heading lower into the open — Dow futures now down 1,200 points," April 3, 2025.

Footnote 2 Reuters, "Trump tariffs: List of global responses and countermeasures," April 3, 2025.
March 11, 2025

The rebalancing act behind the latest volatility

So, what just happened? Equity markets dropped on Monday amid growing concern over the economy. Technology stocks led the decline, with the tech-heavy Nasdaq Composite Index falling by nearly 4%, and the S&P 500 down 2.7%.Footnote 1 Many news reports attributed the volatility to concerns around tariffs and recent comments from the administration about a possible recession.Footnote 2
While some Wall Street observers have raised the probability of a recession, we see this, first and foremost, as a major rebalancing from growth areas towards more defensive sectors. Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank.
Our take on what this means
"While some Wall Street observers have raised the probability of a recession to nearly one in two, we don't see it that way," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "We see this, first and foremost, as a major rebalancing as market sentiment shifts away from growth areas, such as technology, which have dominated in recent years, towards more defensive sectors like healthcare, utilities and consumer staples." He adds, "We believe this market drawdown, accelerated by profit-taking, is driven by economic growth worries, which in our view are exaggerated."
How should investors respond?
It's more common than not to experience one or more corrections of 10% or more in any given year. "While volatility is always unsettling, investors should avoid sudden decisions to sell assets," Hyzy says. "We view this weakness as a potential buying opportunity and a time for investors to consider rebalancing their portfolios," he explains. "Now may be a time to explore diversifying into Europe and other developed markets, which are finally becoming more attractive after years of underperforming relative to the U.S."
For a deeper dive into what's driving the markets now and how you can consider responding, read the latest Investment Insights report from the Chief Investment Office, "From off the horse to back in the saddle (PDF)" and check out the latest CIO Market Update audiocast.
Footnote 1 CNBC, "Dow tumbles nearly 900 points, Nasdaq suffers worst day since 2022 as recession fears erupt: Live updates," March 10, 2025.

Footnote 2 The Wall Street Journal, "Stock Market Today: Nasdaq falls 4% after Trump doesn't rule out recession," March 10, 2025.
March 7, 2025

Tit-for-tat tariffs are here. What should investors do?

The other shoe has fallen. After a 30-day delay, the U.S. imposed threatened tariffs of 25% on imports from Canada and Mexico and increased tariffs on China early this week. America's three largest trading partners responded by announcing plans to impose retaliatory tariffs, causing market volatility to rise sharply,Footnote 1 despite reports that a compromise might be reached, limiting the number of sectors subject to tariffs on goods from Mexico and Canada. Later in the week, the administration gave Mexico and Canada temporary reprieves on some goods, announcing that imports trading under the rules of the U.S.-Mexico-Canada Agreement would be exempt through April 2.Footnote 2
Amid all the uncertainty, "investors are assessing the impact of these new tariffs on U.S. growth, business confidence and corporate earnings," says Joe Quinlan, head of Market Strategy in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. In a recent CIO Capital Market Outlook, Quinlan notes that the U.S. economy, which depends much less on trade than on the extraordinary power of consumer consumption, could be relatively well-positioned to withstand any negative impacts. Below, he offers insights on what investors could expect next and how they might respond.
In this era of shifting dynamics, nimbleness and rebalancing remain prerequisites. Joe Quinlan, head of Market Strategy, Chief Investment Office, Merrill and Bank of America Private Bank
Expect more turbulence ahead. A trade war could lead to global supply-chain disruptions, lower corporate earnings, higher prices for goods and services, higher-for-longer inflation and a pause in the global easing of interest rates, Quinlan says.
Focus on high-quality companies. In that environment, investors should consider companies with strong balance sheets, Quinlan adds. "Look to strike a balance between growth stocks, largely in technology, and value sectors such as healthcare, industrials and financials," he suggests. "Dividend-paying stocks also look more attractive now, as do defense and cyber security leaders."
Combine caution with calm. Amid today's considerable uncertainty, Quinlan advises investors to stay focused on their goals and diversified across and within asset classes. "Consider periodic volatility as an opportunity to add to your portfolio and rebalance as necessary," he says. "If you work with an advisor, speak with them about the best way forward. In this era of shifting dynamics, nimbleness and rebalancing remain prerequisites."
Stay connected with the latest insights by tuning in to the CIO's Market Update audiocast series.

TEST YOUR TRADE KNOWLEDGE

Tap + to select correct answer and learn more
Q: True or false: U.S. exports of goods and services account for just 11% of gross domestic product?
Footnote 1 The Wall Street Journal, "Trump's Tariffs on Canada and Mexico take effect, with added duties on China," March 4, 2025.

Footnote 2 The New York Times, "Trump Administration Live Updates: In reversal, most new tariffs on Mexico and Canada suspended," March 6, 2025.

Footnote 3 Statista, 2025.

Footnote 4 CEIC Data, "United States Private Consumption: % of GDP," December 2024.
February 18, 2025

Tariffs' impact on the markets. It's complicated

Beware of simple answers. "While political disputes often center on bilateral trade imbalances, today's global economy is complex, with many moving parts," says Joe Quinlan, head of Market Strategy in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. "You need to consider how trade has evolved, and which sectors may be at risk."
With potential tariffs likely on the table for the foreseeable future, the February 10 CIO Capital Market Outlook (PDF) unpacks some of these complexities and offers insights on what they might mean for the economy, the markets and your investments.
Tariffs and counter-tariffs could throw sand in the gears of U.S. multinationals. Joe Quinlan, head of Market Strategy, Chief Investment Office, Merrill and Bank of America Private Bank
Separating the news from the noise: 3 points to keep in mind
First, the U.S. economy is somewhat insulated from potential impacts: "Though it's one the world's largest trading nations, the U.S. is less trade-dependent than many economies in Europe, Asia and emerging markets," Quinlan says. Exports comprise just 11% of U.S. gross domestic product (GDP), compared with more than 50% of European Union GDP.Footnote 1 "Still, sustained, far-reaching tariffs could drag corporate earnings and U.S. economic growth and spur inflation," he cautions.
Second, individual sectors may be at risk, and they bear watching: Trade today is less about imports versus exports than intricate cross-border investments and partnerships. "Tariffs and counter-tariffs could throw sand in the gears of U.S. multinationals," he says. "Autos, pharmaceuticals, oil and gas and semiconductors may be at risk, along with retail and the food and beverage sector."
Third, small businesses are not immune: "While investors may assume trade disputes affect only the largest companies, smaller and mid-sized businesses have reaped the rewards of a world trading system that is more open than closed," Quinlan says. "If anything, sustained tariffs could be harder on them than on large-cap companies."
The bottom line for investors: Despite the flurry of headlines, the tariff picture remains uncertain and evolving and the U.S. economy is resilient, Quinlan says. Investors should keep a close watch on specific sectors of the economy but avoid making sudden decisions. "Stay focused on your goals, speak with your advisor if you work with one, and use temporary volatility as a way to strategically add to your portfolio," he suggests.
One final note: Inflation ticked up 0.5%, slightly more than expected, in January, according to the Labor Department.Footnote 2 For insights on the potential impact of tariffs on inflation moving forward, read "Where We Stand: CIO Tariff Scorecard" in the February 10 issue of Capital Market Outlook (PDF).
Footnote 1 United Nations Trade and Development. Data refers to 2023, as of January 2025.

Footnote 2 The Wall Street Journal, "Inflation heated up in January, freezing the Fed," February 12, 2025.
February 6, 2025

Competition heats up in Artificial Intelligence

There's a new AI kid on the block — China-based startup DeepSeek — and it's causing some angst among investors and U.S.-based companies in the AI space. Technology stocks tumbled on January 27, shortly after DeepSeek introduced its latest large-language model, a powerful chatbot reportedly consuming less power and developed at lower cost than existing models.
Video: Market Decode: The new AI kid on the block
Press enter to play 'Market Decode: The new AI kid on the block' video
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Market Decode
Disclaimer:
Please read important information at the end of this program. Recorded on 1/30/25.
[Chris Hyzy speaking throughout]
Some are calling it the DeepSeek "Frenzy." On Monday, January 27th, an entire chain of industries tied to Artificial Intelligence came under severe pressure by China-based DeepSeek's announcement of a lower cost, more efficient and less power-hungry AI tool.
The news rattled investors, leading to a sharp 3% decline in the tech-heavy NASDAQ, driven by a double-digit decline in one of the largest semiconductor companies in the world by market capitalization.
Lower third:
Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
I'm Chris Hyzy, with thoughts on what this means — and why we believe the fears may be overblown and the news, in the long run, contains some positives.
So, what's behind the "frenzy"?
DeepSeek's energy-efficient AI tool, which was reportedly developed at far lower cost than existing models, sparked fear and concern by investors on its potential impact on the following:
  • Capital investment in Artificial Intelligence
  • Future energy demand
  • and whether U.S. AI dominance would be dented or even gone.
On-screen copy:
  • Capital investment in AI
  • Future energy demand
  • Whether U.S. AI dominance would be affected
While those concerns are understandable, we see the DeepSeek news as part of an evolving AI story that will contain many surprises, disruptions, and benefits.
Here's our view:
First, lower development costs, greater efficiencies, and less power usage point to higher productivity gains. That would be good for growth in the economy and positive for market growth, both nominal and real.
On-screen copy:
  • AI evolution could lower development costs and increase productivity
  • Easier AI adoption could lead to greater profitability for companies
  • Competition could foster accelerated AI innovation
Second, these benefits could lead to wider and easier adoption across the corporate landscape, leading to potentially wider margins, and greater profitability for companies.
And third, we expect this new competition in the AI space to foster innovation at an accelerated rate.
Lastly, we don't believe that future power demand is likely to wane on the back of DeepSeek's news. Why? Because we expect even wider adoption. With wider adoption, the demand curve for power needs should go up across the globe, not down.
Lower third:
Wider adoption could increase the need for power across the globe.
Let's turn to America's dominance in the AI space. Is it now gone?
We don't believe so. We expect this competition to kickstart further innovation.
U.S. capital investment still leads the world by many multiples, and the equipment, design, engineering, and power access needed to lead in the future is overwhelmingly U.S.-born.
What about the overall impact on markets?
On-screen copy:
New supports our:
Productivity theme including increased U.S.-led economic and profits growth
Infrastructure and power theme
View that AI software segment could benefit as the cost of integrating AI drops
If anything, this latest news supports our productivity theme, including above average, U.S.-led economic growth and double-digit profits growth.
And it supports our infrastructure and power generation theme, as well as our view that the AI software segment should benefit as the cost of integrating generative AI drops.
DeepSeek does call into question the premium valuations of some mega technology stocks and whether their future growth rates can be sustained.
But we believe the generative AI movement is just beginning. The robotics revolution is coming quickly, and the most advanced companies should remain leaders — even in the face of competition.
Lower third:
The generative AI movement is just the beginning of the tech evolution.
And as AI adoption grows, we expect the "best of the rest" — those 493 S&P 500 firms not among the "Magnificent 7" companies — to see a boost in multiples as their profitability rises.
For more timely insights on the economy and markets, be sure to read our weekly Capital Market Outlook.
Thanks for watching, and that's the Market Decode.
On-screen disclaimers:
Important Disclosures
The opinions expressed are as of January 30, 2025 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 foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
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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[-] Close transcript
Market concerns may be overblown, believes Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "This new competitor is part of an evolving tech evolution holding significant promise for the economy and long-term investors." In fact, he notes, "Competition should only help to accelerate innovation." Taking up the challenge, a number of companies involved in the AI space made a point of confirming their capital spending commitments on earnings calls after the DeepSeek announcement last week.
Watch the video above for more of Hyzy's thoughts on risks and opportunities in the AI space and why he believes the U.S. is well-positioned to remain the global leader in AI innovation. You'll find a deeper dive into the disruption caused by DeepSeek and what it might mean for your investments in this week's Capital Market Outlook (PDF).
February 3, 2025

What's behind the Fed's rate-cutting pause?

After three headline-grabbing interest rate cuts in 2024, the Federal Reserve (the Fed) concluded its January meeting on Wednesday, January 29, by announcing that it would hold its benchmark interest rate steady at 4.25% to 4.5%,Footnote 1 offering little indication of when it might cut again. The pause was widely expected, and markets largely took it in stride. "The lack of drama was intentional. We believe the Fed wanted this meeting to be a 'yawn,'" says Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank.
Any additional cuts will be driven by hard data as the Fed balances its twin mandates of controlling stubborn inflation and maintaining low unemployment. Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank
"Market expectations have shifted significantly in the past couple of months from the original four cuts in 2025 to one — or none," Hyzy adds. Wednesday's widely anticipated pause reinforces that "any additional cuts will be driven by hard data as the Fed balances its twin mandates of controlling stubborn inflation and maintaining low unemployment," he says. A recent rise in 10-year Treasury yields, for example, reflected a fundamentally strong economy and ongoing inflation concerns, both likely factors in slowing the pace of cuts.
For more on interest rates, bond yields and inflation, watch "What's up with 10-year Treasury yields?" In this conversation, Hyzy talks with Matthew Diczok, head of Fixed Income Strategy for the Chief Investment Office, Merrill and Bank of America Private Bank, about moves investors can consider in the current rate environment. You can catch Hyzy's market insights weekly on the CIO's Market Update audiocast.
Footnote 1 Forbes, "Federal Reserve pauses interest rate cuts - first meeting without a cut since July," January 29, 2025.
January 17, 2025

Are interest rate cuts off the table this year?

Investors expecting a pair of interest rate cuts by the Federal Reserve (the Fed) in 2025 are now adjusting to the prospect of a single cut — or none. A surprisingly strong labor report released January 10 showed the economy adding 256,000 jobs.Footnote 1 While good news for workers and the economy, the report intensifies ongoing concerns over sticky inflation.
"With inflation likely averaging around 3%, rather than the 2% target, the Fed has shifted from a rate-cutting approach to a wait-and-see, watching from the sidelines approach," says Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank. "Any future cuts will be driven by data rather than by market hopes and expectations." Based on current data, BofA Global Research now believes the Fed could put cuts on hold for 2025, Hyzy notes.
Investors should avoid reading too much into the timing of individual rate cuts. As the year progresses, we expect markets to refocus on the fundamental strengths of the U.S. economy. Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank
Here's our take on what this means
The delays are a major disappointment for investors who originally expected up to four additional cuts in 2025.Footnote 2 Lower rates reduce the cost of borrowing for businesses and consumers — a boon for rate-sensitive industries like housing, automobiles and small businesses. Yet after a years-long battle with inflation, the Fed is wary of cuts that could prompt a new spike in prices. They'll be closely monitoring economic data such as inflation, housing prices and unemployment, as well as financial markets. Some reason for cautious optimism: Core inflation and wholesale prices both rose by a lower-than-expected 0.2% in December from the previous month.Footnote 3
Inflation watch. Reason for cautious optimism: Core inflation rose by a lower-than-expected 0.2% in December from the previous month. Source: Bureau of Labor Statistics, Consumer Price Index, 2024.
The outlook for investors
Rate uncertainties have contributed to recent stock market weakness, Hyzy notes. "After historic gains in 2023 and 2024, the equity 'fizzle' that started in December could extend into February, with periodic volatility." At the same time, "investors should avoid reading too much into the timing of individual cuts," Hyzy believes. "As the year progresses, we expect markets to refocus on the fundamental strengths of the U.S. economy, such as consumer spending, innovation and, especially, corporate earnings," he adds. "We still expect double-digit earnings growth for 2025 into 2026." Investors should look for potential buying opportunities amid early-year volatility and emphasize diversification across and within asset classes.
Footnote 1 CNN Business, "Job growth skyrocketed in December, boosting one of the strongest labor markets in US history," Jan. 10, 2025.

Footnote 2 Yahoo Finance, "Fed cuts rates by quarter point, scales back cuts for 2025," Dec. 19, 2024.

Footnote 3 CNBC, "10-year Treasury yield pulls back after core inflation is light in December," Jan. 15, 2025; CNBC, "Inflation watch: Wholesale prices rose 0.2% in December, less than expected." Jan. 14, 2025.
January 15, 2025

Could the bull stumble? 5 potential risks to watch

Strong corporate earnings, disruptive innovations and resilient consumers: It all adds up to a favorable environment for U.S. equities and investors in 2025 and beyond. So, what could go wrong?
"Markets are never linear," says Joe Quinlan, head of Market Strategy in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. "Even when things look bullish, it's important to consider risks that could cause the bull to stumble." Below are five possible scenarios to keep an eye on.
Be aware of risks but don't be constrained by them. Stay invested as these forces play out. Joe Quinlan, head of Market Strategy, Chief Investment Office, Merrill and Bank of America Private Bank
Put these possible scenarios on your watch list
1. Higher-than-expected inflation delays and derails rate cuts, rattling the market near-term. Inflationary expectations have shifted higher in early 2025, triggering a rethink and reset about U.S. monetary policy. The market is now pricing in one rate cut this year,Footnote 1 while BofA Global Research economists expect the Fed to pause altogether in 2025.
2. Gridlock thwarts policies. Many expect single-party control in Washington to bring market-friendly tax and regulation changes in 2025. Still, enacting legislation is complex, especially with a slim House majority, and the shape and timing remain fluid.
3. AI payoff takes a while. Amid massive capital investment in artificial intelligence (AI) infrastructure, just 6% of U.S. firms currently use AI to boost productivity and produce goods and services.Footnote 2 While the transformative benefits are real, an open question is how quickly AI will drive substantial economic growth.
4. Relations with China worsen. With the U.S. and China already at odds over trade, technology and Taiwan, tariffs and retaliations could deteriorate a relationship still vital to both economies.
5. Deficits unnerve markets. A dynamic economy and global appetite for U.S. Treasurys have so far enabled the federal government to manage its finances despite surging budget deficits. Without budget reforms, though, growing deficit concerns could disrupt markets.
Investor Rx: Take a balanced approach to risk
"Be aware of risks but don't be constrained by them," Quinlan advises. "Investors should expect 'chop and churn' and stay invested as these forces play out. Given the underlying positives, market pullbacks may offer opportunities to add high-quality assets that fit with your long-term strategy."
For regular updates on potential risks and opportunities throughout the year, tune in to the CIO's Market Update audiocast series.
Footnote 1 Morningstar, "Jobs report shuts door on January Fed rate cut; U.S. CPI data due as focus remains on bond markets," January 13, 2025.

Footnote 2 U.S. Census Bureau. Data collected in October 2024, as of Dec. 12, 2024.
August 5, 2024

What's causing the volatility — and how can you respond?

A lower-than expected July jobs report drove markets down on Friday, during a week already beset by volatility.Footnote 1 The 800-point plunge in the Dow Jones Industrial Average raised new concerns about the prospects for an economy that has remained surprisingly resilient throughout 2024. Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, offers four reasons for the latest disruption and four reasons to keep things in perspective.
'Avoid sudden reactions to headlines and market shifts. Stay diversified across and within asset classes and rebalance as necessary.' - Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank

4 drivers of volatility

  1. Recession concerns. "As reflected in the jobs report, economic data has been consistently slowing," Hyzy notes. "Investors fear early signs of a recession."
  2. Overdue rate cuts? Observers increasingly believe the Federal Reserve (the Fed) fell behind by not cutting rates at their July meeting.
  3. Geopolitics. With November's presidential election and wars abroad, "the geopolitical environment has become more uncertain," Hyzy says.
  4. Bond-buying pullback. A rate increase by the Bank of Japan and subsequent pull-back on bond buying has upset currency, interest rates and risk assets such as technology stocks globally.

4 reasons for calm

  1. Recession unlikely. "We believe the economy is still normalizing from pandemic-era disruptions," Hyzy says. "While the road back is rocky, the BofA Global Research team does not expect a recession, all things considered."
  2. Strong earnings. "Corporate profits remain healthy. We expect low double-digit growth for the S&P 500 this year, and mid to high single digits in 2025," Hyzy believes.
  3. Rational rate decisions. While rate moves naturally draw extra attention amid volatility, the Fed is working to normalize rates based on inflation and employment trends, rather than panic over a recession, Hyzy says. And potentially significant cuts appear likely soon. "The Fed funds futures market now has a better than 80% probability of a 50-basis-point cut in September."
  4. AI-powered productivity. "The long-run benefits of generative artificial intelligence (Gen AI) across a number of sectors are just beginning," Hyzy says. "Higher productivity combined with rapid innovation allows for more substantive corporate growth than many observers are seeing."

Expect more volatility, and stay diversified

As the economy continues to work through these challenges, investors should expect above average volatility in the short term, Hyzy says. "Avoid sudden reactions to headlines and market shifts," he suggests. "Stay diversified across and within asset classes and rebalance as necessary." As you consider your long-term investment goals, he adds, "look for periods of market weakness as an opportunity to strategically add to your portfolio."
For more on current market volatility, read "Four by Four Relay (PDF)," the latest Investment Insights from the CIO, and tune in to the CIO's Market Update audiocast series.
Footnote 1 MarketWatch, "Stock market today: Dow down 800 points as recession fears bulldoze stocks," August 2, 2024.
July 26, 2024

Can markets top their strong first half of 2024?

Defying predictions of a market letdown, the S&P 500 Index of the largest U.S. stocks surged 14.5% during the first half of 2024. So, can equities maintain that momentum through the rest of the year? History says it often happens.
What history tells us: In years when the S and P 500 returned greater than 10% in the first half, the index was higher 82.6% of the time in the second half. Source: Bloomberg. Data as of June 28, 2024. Past performance is no guarantee if future results. It is not possible to invest directly in an index.
"Since 1950, in years when the S&P 500 returned greater than 10% in the first half, the index was higher 82.6% of the time in the second half,"Footnote 1 says Kirsten Cabacungan, Investment Strategist for the Chief Investment Office (CIO) at Merrill and Bank of America Private Bank. While past performance doesn't guarantee future results, a recent Chief Investment Office Capital Market Outlook report, "Can U.S. equities take the heat (PDF)?" highlights three factors supporting that hopeful outlook:
  • Economic activity, while moderating, continues to outperform expectations, thanks to cooling inflation, a still-solid labor market and consumer spending.
  • The rise of generative artificial intelligence (AI) is driving enthusiasm for U.S. companies.
  • Corporate earnings are gaining momentum. "Analysts expect S&P 500 earnings to grow by around 11.0% this year and 14.4% in 2025, a big improvement over 2023," Cabacungan says.Footnote 2

What could hold the markets back?

Uncertainties, ranging from global geopolitics to the possibility that inflation could remain above the Federal Reserve's 2% target longer than expected, remain potential roadblocks. And then there's November's contentious presidential election. "The Chicago Board Options Exchange Volatility Index (VIX) has historically risen 25% on average from July to November during election years since 1928," Cabacungan says.Footnote 3 While stocks tend to rally after an election, lingering volatility could dampen second half results, she adds.

Market choppiness could create potential buying opportunities

Despite the markets' strong first-half performance, the economy is still working through extraordinary disruptions from the pandemic. "Until that's complete, investors should anticipate some market choppiness," Cabacungan notes. She suggests staying diversified both across and within asset classes and looking for opportunities to strategically add to your portfolio during times of weakness.
Footnote 1 Bloomberg. Data from January 1950 to December 2023.

Footnote 2 FactSet. Data as of June 26, 2024.

Footnote 3 BofA Global Research. March 2024. Based on data for all U.S. elections since 1928.

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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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