Bank of America said in a new note to clients that falling real bond yields could turn from a headwind into support for equities, though it remains negative on European stocks. The bank noted European equities have been flat since the outbreak of the U.S.-Iran war despite accelerating growth, with the global PMI on track to reach about 54.5 in September, the strongest reading since 2018 excluding the pandemic. That strength, alongside above-target inflation, an improving U.S. labor market and rising energy prices, has pushed the Fed and the European Central Bank back into tightening mode, and the resulting rise in U.S. 10-year real yields has offset a 13% surge in forward earnings estimates for the Stoxx 600. BofA's macro analysts expect only short hiking cycles, with a further 50 basis points from the Fed and 25 from the ECB, significantly more dovish than the 80 to 90 basis points markets have priced in, while its rates strategists see about 25 basis points of downside for the U.S. 10-year real yield by year-end. The bank said it remains negative on European equities and underweight cyclicals versus defensives, expecting the equity risk premium to rise and translate into nearly 10% further downside for the Stoxx 600.
Bank of America CorpBofA's own note forecasts falling real yields could support equities but stays negative on European stocks and underweight cyclicals; mixed read-through for the bank itself.
NVIDIA Corporation
