BofA's Top 10 Big Predictions for 2026: AI Boom Continues, US and Chinese Economies Grow Beyond Expectations

"AI boom," "strong global stock market rally," "Fed rate cuts," and "trade uncertainty" are undoubtedly several key themes that have defined this year. As 2025 draws to a close, Wall Street investment banks have begun issuing outlooks for the global economy and markets next year.

After the strong performance of U.S. and global markets in 2025, investors are eager to know how much further this rally can go.

Bank of America Global Research recently forecasted in a report that the global economy will enter 2026 with momentum exceeding investor expectations. The bank also expects stronger economic growth in both the United States and China, continued AI-driven investment, and a rotation among market leaders.

"Despite lingering market concerns, our team remains positive on the economy and artificial intelligence," said Candace Browning, head of Bank of America Global Research.

She argued that fears of an imminent AI bubble burst are "overstated," and predicted GDP growth rates in the U.S. and China in 2026 will exceed consensus forecasts.

Below are Bank of America's ten major predictions for 2026:

1. U.S. GDP growth will exceed consensus expectations

Bank of America's outlook for U.S. economic growth in 2026 is more optimistic than overall market expectations.

Senior economist Aditya Bhave forecasts annualized U.S. GDP growth of 2.4% next year, driven by fiscal support from the "Big Beautiful Act," reinstatement of incentives under the Tax Cuts and Jobs Act, friendlier trade policies, a rebound in corporate investment, and the lagged effects of Federal Reserve rate cuts.

In Bank of America's view, current macroeconomic fundamentals are not as weak as many investors believe.

2. The AI boom will continue; talk of a bubble is unfounded

Bank of America believes the AI investment cycle will continue expanding rather than collapsing. AI-related capital expenditures—such as investments in data centers, chips, and automation—have already contributed to GDP growth, and this driver(8.930, -0.19, -2.08%) will remain strong in 2026.

Strategists note that capital spending on data centers, semiconductor capacity, and automation technologies will remain robust, boosting productivity and supporting corporate profitability.

To date, the iShares Semiconductor ETF has risen over 40% year-to-date and has surged 450% since OpenAI launched ChatGPT in November 2022.

3. Favorable macro conditions will benefit emerging markets

Emerging markets are expected to perform better due to factors including a weaker dollar, declining U.S. interest rates, and falling oil prices.

David Hauner, Bank of America's emerging markets strategist, pointed out that these favorable factors will ease financing pressures on emerging markets and drive greater capital inflows into developing economies in 2026.

This year, the iShares MSCI Emerging Markets ETF has gained 30%, outperforming the popular Vanguard S&P 500 ETF.

4. China's economic growth outlook improves

Bank of America has upgraded its growth forecast for China. The bank's chief economist, Helen Qiao, added that with recent trade talks sending positive signals and stimulus measures gradually taking effect, there is upside potential to her forecast.

5. Strong S&P 500 earnings but limited stock price gains

Savita Subramanian, Bank of America's equity analyst, expects S&P 500 component companies' earnings per share (EPS) to grow 14% in 2026. However, she believes the index has only 4% to 5% upside and has set a target level of 7,100 points.

She believes the market is transitioning from a previous consumption-driven cycle to a new one led by capital expenditures, particularly in technology and infrastructure investment.

6. U.S. Treasury yields may fall more than expected

Investors may be overestimating how long U.S. Treasury yields will stay elevated. While most expect the 10-year Treasury yield to be between 4% and 4.5% by end-2026, Bank of America's rates strategist Mark Cabana predicts it will range between 4% and 4.25%.

He expects the Federal Reserve to cut rates in December 2025 and again in June and July 2026, creating sustained downward pressure on Treasury yields.

7. U.S. home prices will remain stable but face upside risks

Bank of America's securitized products team, led by Chris Flanagan, forecasts that nationwide U.S. home prices will be largely flat in 2026, though transaction volumes will rise. Regional differences in prices may widen depending on local housing supply and affordability.

With Fed rate cuts lowering mortgage rates, the balance of risk for U.S. home prices appears slightly tilted upward.

8. Market volatility will increase as AI's impact becomes clearer

Bank of America expects market volatility to rise in 2026 as investors gain a clearer understanding of how AI is reshaping economic fundamentals.

A reassessment of AI's impact on GDP potential, inflation trends, and corporate capital expenditure cycles could trigger sharp fluctuations across asset prices.

The bank also notes that U.S. fiscal policy and a K-shaped recovery will be additional sources of market turbulence.

9. Private credit returns will decline

Following a strong performance in 2025, returns in private credit are likely to decrease. Strategist Neha Khoda believes total returns in private credit will fall from around 9% this year to approximately 5.4% in 2026.

This shift may prompt investors to turn toward high-yield bonds or other income-generating assets offering higher relative value.

10. Copper is poised for another strong year

Despite already rising 35% year-to-date, copper prices are expected to climb further in 2026. Although construction and manufacturing activity have been weak this year, persistent supply tightness has supported prices.

Michael Widmer, Bank of America's metals strategist, expects the copper supply deficit to continue and, combined with policy easing and a recovery in global demand, provide further support for prices.