BofA's Chris Hyzy: 2026 Market Outlook - 'Proud Bull' Driven by Profit Growth

2026 Market Outlook: The 'Proud Bull'

• 🐂 Chris Hyzy, Chief Investment Officer at Merrill and Bank of America Private Bank, anticipates a 'proud bull' market in 2026, not a stampeding one.
• 🎯 This 'proud bull' signifies a market that reflects on past hard work (over the last 36 months) and looks forward to profit growth rather than solely multiple expansion.
• ⚠️ Midterm election years, like 2026, are expected to bring more volatility, but potential pressures and stimuli are seen as buying opportunities if the high-conviction growth story remains intact.

Market Dynamics: Small Caps vs. Tech

• 📈 Small-cap stocks are currently at all-time highs, while the NASDAQ is lagging, a dynamic Hyzy believes is not temporary.
• ⚡ Volatility in tech and communication services is expected to continue as questions arise about sustaining high growth rates during buildouts.
• ✅ Small caps are gaining traction due to potential fiscal relief (100% expensing) and slightly lower rates, leading to an overweight position in this sector.

Federal Reserve's Role and Market Liquidity

• 🏦 The Federal Reserve's decision to end quantitative tightening and utilize reserve management to increase liquidity is viewed as a significant 'risk-on' move.
• 📉 This action is a response to concerns about funding markets, aiming to prevent a repeat of the Q4 2018 situation.
• 📊 The Fed's program is expected to continue, potentially with adjustments in scale, contributing to a positive market close for the year.