Latest news with #stagflation
Yahoo
a day ago
- Business
- Yahoo
‘Not just a cyclical recovery, but a boom.' BofA says a ‘key tail risk' is that the Trump economy will actually start to take off
In a market landscape still fixated on fears of stagflation and modest recoveries, Bank of America is sounding a contrarian—and decidedly bullish—note. According to new note from BofA Research analysts, the next phase for the U.S. economy and equities might not be a routine recovery, but an outright boom. 'Today a confluence of factors argue that the key tail risk that may not be priced in is not just a cyclical recovery, but a boom,' they said. 5 reasons for a boom BofA analysts cited five pillars supporting this more bullish case. First is political will, arguing that with U.S. midterm elections a few quarters away, policymakers have strong incentive for near-term, pro-growth initiatives. Second is Washington's 'One Big Beautiful Bill Act' (OBBBA) targeting domestic manufacturing. Third is the massive overseas jolt gathering, with Germany recently enacting the largest stimulus package in EU history, while global reflationary forces are building elsewhere. Fourth, BofA sees a broad expansion of capital expenditures, with hyperscalers such as Amazon, Meta, Microsoft, and Alphabet set for nearly $700 billion in capital expenditures between 2025 and 2026. In addition, more non-U.S. companies plan to expand manufacturing capacity in the U.S., while municipalities are focused on updating aging infrastructure. Fifth, BofA cited its proprietary 'Regime Indicator,' a blend of macro signals including corporate revisions to earnings per share, GDP forecasts, and other emerging signals. It's on the verge of flipping from a 'Downturn' to a 'Recovery'—a change that historically presages a rally in value stocks. The dominant narrative in this indicator remains conservative, according to the BofA team, led by Savita Subramanian. In June, 70% of fund managers still predicted stagflation, with only 10% foreseeing a 'boom' of above-trend growth and inflation. Yet, BofA argues, the catalyst for an upside breakout is real and imminent. If the Regime Indicator does indeed flip to 'Recovery' in early August, historical precedent suggests a rapid rotation is likely. So how healthy are these five factors actually looking? Will there be enough spending? Top economies have already pledged massive stimulus. In March, China unveiled plans to issue 1.3 trillion yuan ($179 billion) in special treasury bonds this year, plus 4.4 trillion yuan of local government special-purpose bonds. Meanwhile, much of the EU's stimulus still flowing from the earlier NextGenerationEU package is worth up to €806.9 billion (about $880 billion) through 2026. Major European economies have supplemented this with additional investments and, in some cases, targeted fiscal expansion. Japan, South Korea, Canada, and Australia have adopted smaller-scale but still significant fiscal measures in 2025 to address sector-specific slowdowns, energy security, and household purchasing power. Most are focusing on targeted transfers, green investments, and industrial support. Meanwhile, American companies have announced billions in new U.S. manufacturing, infrastructure, and technology investments since Trump took office, but these initiatives were announced before passage of the OBBBA. Many investments are phased and slated for completion over the next decade, and it's unclear how much can come online soon enough to play a role in the boom that BofA Research is projecting. Some of them, such as OpenAI's $500 billion Stargate project, are reportedly struggling to raise funding to match the big numbers initially announced. For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing. This story was originally featured on Error al recuperar los datos Inicia sesión para acceder a tu cartera de valores Error al recuperar los datos Error al recuperar los datos Error al recuperar los datos Error al recuperar los datos
Irish Times
a day ago
- Business
- Irish Times
Trump's tariffs: What the world got wrong about US president's trade policy
At the beginning of the year, the world was in striking agreement on one point: if US president Donald Trump proceeded with tariffs, it would strengthen the dollar and trigger stagflation. Chief executives, investors and commentators all said the same. Economists estimated that every percentage point increase in the tariff rate would shave 0.1 per cent off US growth and add 0.1 per cent to inflation. But so far, the consequences have been far less disruptive than just about anyone expected. Some analysts still think that's because Trump's threats have been mostly posturing. But the effective US tariff rate has already risen from 2.5 per cent to 15 per cent. Tariff revenue is rolling in at an annual rate above $300 billion (€249 billion), roughly four times the pace this time last year. Many economists had assumed that, by lowering imports, tariffs would strengthen the dollar almost automatically, as an accounting identity. Instead, it suffered its worst fall over the first half of a year since the early 1970s. READ MORE [ EU-US tariffs deal at 15% preferable to 'ruinous' trade war, says Taoiseach Opens in new window ] This unexpected turn is now attributed to the fact that the dollar started the year historically overvalued. Many foreigners were heavily exposed to dollar assets. Of late, they have been hedging those risks and investing more outside the US. Many countries are increasingly attractive places to park money, in part because tariff threats inspired them to push economic reform and cut trade deals with non-US partners. The bigger mystery is why the stagflationary impact of tariffs has yet to materialise in the aggregate data. Is the US really enjoying a free lunch, taking in $300 billion a year in tariff revenues with none of the expected heartburn? By some estimates, foreign exporters are indeed absorbing 20 per cent of the costs – a much larger share than they did in response to tariffs in Trump's first term. The remaining 80 per cent, however, is still getting paid in roughly equal shares by US corporations and consumers. The likely answer is that the negative economic effect of tariffs is being countered by other forces, including the mania for artificial intelligence (AI) and more government stimulus. Since January, estimates of what the big tech companies will spend this year on building out AI infrastructure have risen $60 billion to $350 billion. Smaller businesses are scrambling to catch the wave too, further boosting growth. And all this excitement is neutralising the fear that trade policy uncertainty would dampen animal spirits and freeze new capex. How will the updated National Development Plan shape Ireland in years to come? Listen | 35:59 AI-driven bullishness is also lifting growth by keeping financial conditions loose, even with higher interest rates. According to a new index from the Federal Reserve, those conditions would be neutral, not loose, were it not for the stock market, which has continued rising this year due largely to AI stocks. Meanwhile, the promise of tax relief makes it easier for US corporations to absorb a larger than expected share of the tariff costs, rather than pass it all on to consumers. Trump's 'big, beautiful Bill' is expected to save US businesses about $100 billion this year and more than that in 2026, mainly in tax breaks. That is not to say tariffs have no negative economic effect. The costs are starting to show up in higher prices for big household appliances, sporting goods and toys. Yet the overall inflation rate has been held in check by falling rents and prices for other kinds of goods, including used cars and energy. And those prices are declining for reasons unrelated to tariffs; used-car prices are still retreating from highs created by supply disruptions during the pandemic. So economists were not entirely wrong about the tariffs. And stagflation may yet materialise, particularly if the average effective rate continues to climb. But so far, even a much higher rate has not been enough to overwhelm the larger forces sustaining growth and containing inflation. In a way, what we are seeing is a replay of 2023. That year, too, many expected a big shock (then mainly from Fed rate rises) to dramatically slow US growth, only to find the impact offset by the AI spending boom and the US government's seemingly bottomless capacity to keep doling out fiscal support. What the world got wrong, then and now, starts with its mental frameworks. The timeworn mistake of employing simple models, in which a headline-grabbing input A leads in a straight line to outcome B, has been greatly magnified by the global obsession with Trump. He is the only input anyone cares to analyse any more. But complex economies are rarely shaped by just one factor, not even a shock as big as Trump's tariffs. – Copyright The Financial Times Limited 2025
Yahoo
2 days ago
- Business
- Yahoo
‘Not just a cyclical recovery, but a boom.' BofA says a ‘key tail risk' is that the Trump economy will actually start to take off
In a market landscape still fixated on fears of stagflation and modest recoveries, Bank of America is sounding a contrarian—and decidedly bullish—note. According to new note from BofA Research analysts, the next phase for the U.S. economy and equities might not be a routine recovery, but an outright boom. 'Today a confluence of factors argue that the key tail risk that may not be priced in is not just a cyclical recovery, but a boom,' they said. 5 reasons for a boom BofA analysts cited five pillars supporting this more bullish case. First is political will, arguing that with U.S. midterm elections a few quarters away, policymakers have strong incentive for near-term, pro-growth initiatives. Second is Washington's 'One Big Beautiful Bill Act' (OBBBA) targeting domestic manufacturing. Third is the massive overseas jolt gathering, with Germany recently enacting the largest stimulus package in EU history, while global reflationary forces are building elsewhere. Fourth, BofA sees a broad expansion of capital expenditures, with hyperscalers such as Amazon, Meta, Microsoft, and Alphabet set for nearly $700 billion in capital expenditures between 2025 and 2026. In addition, more non-U.S. companies plan to expand manufacturing capacity in the U.S., while municipalities are focused on updating aging infrastructure. Fifth, BofA cited its proprietary 'Regime Indicator,' a blend of macro signals including corporate revisions to earnings per share, GDP forecasts, and other emerging signals. It's on the verge of flipping from a 'Downturn' to a 'Recovery'—a change that historically presages a rally in value stocks. The dominant narrative in this indicator remains conservative, according to the BofA team, led by Savita Subramanian. In June, 70% of fund managers still predicted stagflation, with only 10% foreseeing a 'boom' of above-trend growth and inflation. Yet, BofA argues, the catalyst for an upside breakout is real and imminent. If the Regime Indicator does indeed flip to 'Recovery' in early August, historical precedent suggests a rapid rotation is likely. So how healthy are these five factors actually looking? Will there be enough spending? Top economies have already pledged massive stimulus. In March, China unveiled plans to issue 1.3 trillion yuan ($179 billion) in special treasury bonds this year, plus 4.4 trillion yuan of local government special-purpose bonds. Meanwhile, much of the EU's stimulus still flowing from the earlier NextGenerationEU package is worth up to €806.9 billion (about $880 billion) through 2026. Major European economies have supplemented this with additional investments and, in some cases, targeted fiscal expansion. Japan, South Korea, Canada, and Australia have adopted smaller-scale but still significant fiscal measures in 2025 to address sector-specific slowdowns, energy security, and household purchasing power. Most are focusing on targeted transfers, green investments, and industrial support. Meanwhile, American companies have announced billions in new U.S. manufacturing, infrastructure, and technology investments since Trump took office, but these initiatives were announced before passage of the OBBBA. Many investments are phased and slated for completion over the next decade, and it's unclear how much can come online soon enough to play a role in the boom that BofA Research is projecting. Some of them, such as OpenAI's $500 billion Stargate project, are reportedly struggling to raise funding to match the big numbers initially announced. For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing. This story was originally featured on Sign in to access your portfolio
Yahoo
2 days ago
- Business
- Yahoo
Goodbye stagflation: 3 reasons BofA sees the US economy avoiding a worst-case scenario
Bank of America thinks the global economy is leaning away from the worst-case scenario: stagflation. Factors like Trump's policies & AI investment could support an economic boom instead, the bank said. Stagflation, where inflation rises while growth slows, is thought to be even harder to remedy than a recession. The US economy may have successfully steered clear of a dire outcome many observers were warning of just a few months ago. That's according to analysts at Bank of America, who said they believe the US economy could be more on track for a cyclical boom rather than an episode of stagflation, a nightmare situation in which inflation rises while economic growth slows. Stagflation is commonly thought of as even worse than a typical recession, as policymakers are prevented from cutting interest rates to boost the economy. For a while, that scenario was one of the biggest fears on investors' minds as they weighed the impact of Donald Trump's "Liberation Day" tariffs. But strategists said they think the economy is now leaning away from such a situation, even as many global fund managers surveyed by the bank said in June that they thought the global economy would slip into stagflation over the next 12 months. "The latest fund manager survey shows a small increase in investors expecting a Boom rather than the base case of Stagflation," analysts wrote, defining a "boom" as above-trend economic growth and above-trend inflation. "We agree with this building minority, and present below corroboration from our quantitative work," they added. Here are three reasons the bank sees stagflation risk fading. 1. Trump's pro-growth agenda President Donald Trump's America-first economic agenda is expected to act as a tailwind to the US economy, BofA strategists said. The bank pointed to stimulus measures included in Trump's "Big Beautiful Bill," as well as the push to boost activity in US manufacturing. "Moreover, with mid-term elections a few quarters away, it behooves the current administration to implement pro-growth policy now," the bank's strategists added. 2. Big spending Companies and the public sector are spending big on artificial intelligence, infrastructure, and manufacturing, BofA said. For AI in particular, analysts said they were expecting $700 billion in capex from the so-called hyperscalers through 2025 and 2026, with "upward revisions each quarter." "The number of companies outside of the US planning to expand manufacturing capacity in the US continues to increase. Municipalities have also refocused on infrastructure with aged capital stock fraying as domestic activity increases," they added. 3. Economic recovery mode Bank of America's US Regime Indicator, a gauge for where the US currently is in the business cycle, looks to be "on the brink" of an economic recovery, analysts said. The US Regime Indicator ticked lower in June, which indicates that the economy is still in a "downturn" phase. Downturn phases are typically followed by economic recovery phases, the bank suggested. The US Regime Indicator saw six inputs from the economy improve last month, strategists noted, which also suggests that the economy could soon be on the uptrend. Here were the six positive changes analysts saw: Earnings per share revisions. Earnings revision breadth bottomed out around -25% in April, according to Morgan Stanley data. Since then, it's improved to -5%, the bank said in a June note, implying that the market is growing more optimistic on corporate earnings. GDP forecasts. Despite a contraction in the first quarter, real GDP was projected to expand 2.8% year-over-year in the second-quarter, according to advanced estimates from the Commerce Department. Manufacturing strength. The Institute for Supply Management's Production Index, one measure of activity in manufacturing, rose to 50.3 in June, which signals that production moved into expansionary territory. Leading Economic Indicators. A collection of economic indicators showed signs of improvement on a year-over-year basis, BofA said. Capacity Utility. The use of "installed productive capacity" in the goods and services sector also improved on a year-over-year basis, strategists added. High-yield credit spreads. Credit spreads—which is the yield paid over a benchmark—have narrowed, which signals higher investor confidence and lower levels of financial stress among companies. Read the original article on Business Insider Sign in to access your portfolio
CNA
2 days ago
- Business
- CNA
Commentary: What the world got wrong about tariffs
NEW YORK: At the beginning of the year, the world was in striking agreement on one point: If Donald Trump went ahead with tariffs, it would strengthen the dollar and trigger stagflation. Chief executives, investors and commentators all said the same. Economists estimated that every percentage point increase in the tariff rate would shave 0.1 per cent off US growth and add 0.1 per cent to inflation. But so far, the consequences have been far less disruptive than just about anyone expected. Some analysts still think that's because Trump's threats have been mostly posturing. But the effective US tariff rate has already risen from 2.5 per cent to 15 per cent. Tariff revenue is rolling in at an annual rate above US$300 billion, roughly four times the pace this time last year. Many economists had assumed that, by lowering imports, tariffs would strengthen the dollar almost automatically, as an accounting identity. Instead, it suffered its worst fall over the first half of a year since the early 1970s. This unexpected turn is now attributed to the fact that the dollar started the year historically overvalued. Many foreigners were heavily exposed to dollar assets. Of late, they have been hedging those risks and investing more outside the US. Many countries are increasingly attractive places to park money, in part because tariff threats inspired them to push economic reform and cut trade deals with non-US partners. WHY STAGFLATION HAS YET TO MATERIALISE The bigger mystery is why the stagflationary impact of tariffs has yet to materialise in the aggregate data. Is the US really enjoying a free lunch, taking in US$300 billion a year in tariff revenues with none of the expected heartburn? By some estimates, foreign exporters are indeed absorbing 20 per cent of the costs – a much larger share than they did in response to tariffs in Trump's first term. The remaining 80 per cent, however, is still getting paid in roughly equal shares by US corporations and consumers. The likely answer is that the negative economic effect of tariffs is being countered by other forces, including the mania for artificial intelligence and more government stimulus. Since January, estimates of what the big tech companies will spend this year on building out AI infrastructure have risen from US$60 billion to US$350 billion. Smaller businesses are scrambling to catch the wave too, further boosting growth. And all this excitement is neutralising the fear that trade policy uncertainty would dampen animal spirits and freeze new capex. AI-driven bullishness is also lifting growth by keeping financial conditions loose, even with higher interest rates. According to a new index from the Federal Reserve, those conditions would be neutral, not loose, were it not for the stock market, which has continued rising this year due largely to AI stocks. Meanwhile, the promise of tax relief makes it easier for US corporations to absorb a larger than expected share of the tariff costs, rather than pass it all on to consumers. Trump's 'big, beautiful bill' is expected to save US businesses around US$100 billion this year and more than that in 2026, mainly in tax breaks. ECONOMIES AREN'T SHAPED BY JUST ONE FACTOR That is not to say tariffs have no negative economic effect. The costs are in fact starting to show up in higher prices for major household appliances, sporting goods and toys. Yet the overall inflation rate has been held in check by falling rents and prices for other kinds of goods, including used cars and energy. And those prices are declining for reasons unrelated to tariffs; used-car prices are still retreating from highs created by supply disruptions during the pandemic. So economists were not entirely wrong about the tariffs. And stagflation may yet materialise, particularly if the average effective rate continues to climb. But so far even a much higher rate has not been enough to overwhelm the larger forces sustaining growth and containing inflation. In a way what we are seeing is a replay of 2023. That year, too, many expected a big shock (then mainly from Fed rate rises) to dramatically slow US growth, only to find the impact offset by the AI spending boom and the US government's seemingly bottomless capacity to keep doling out fiscal support. What the world got wrong, then and now, starts with its mental frameworks. The timeworn mistake of employing simple models, in which a headline-grabbing input A leads in a straight line to outcome B, has been greatly magnified by the global obsession with Trump. He is the only input anyone cares to analyse anymore. But complex economies are rarely shaped by just one factor, not even a shock as big as Trump's tariffs.
