BOFA SAYS 'OLD-ECONOMY' CYCLICALS ARE THE BETTER BET NOW
Take profits in secular growth stocks and buy into cyclical, value-oriented sectors like energy and financials, said BofA strategists, heading into the second half of 2026.
BofA is sticking with its year-end S&P 500 CBOE:SPX target of 7,100 — and hasn't budged. At roughly 5% below where the index trades today, that makes BofA one of the most bearish voices on Wall Street right now.
The reason isn't that stocks are simply too expensive. According to BofA, the bigger problem is that the easy-money conditions that powered markets through 2025 — cheap central bank liquidity, surging buybacks, and heavy investor inflows — are all fading at the same time.
The benchmark S&P 500 index is on track for its best quarter in six years. However, recent weakness has left it on track to snap a two-month winning streak.
Making things trickier, BofA expects the Federal Reserve to raise interest rates three times this year, driven by sticky inflation and a tight job market.
That's a tougher backdrop for growth-heavy tech companies, which are already trapped by massive AI spending commitments they can't walk back without falling behind competitors.
BofA also points out that excluding one-time gains from Amazon NASDAQ:AMZN , Alphabet NASDAQ:GOOG , and Meta NASDAQ:META, the S&P 500's first-quarter earnings growth fell from 27% to 19%. According to BofA, that's an eight-point gap driven by accounting gains — not real business momentum.
"S&P 500 companies are generating less free cash flow relative to net income than historically, driven by a big drop in hyperscalers’ free cash flow (due to increased capex spending)," the analysts said. They highlighted that "old-economy" sectors like energy and financials are lean, carry less debt, and are returning the most cash to shareholders.
BofA said capex takers in cyclical, manufacturing sectors that throw off cash should be owned during a capex boom, not secular growth companies that need to raise capital to compete.