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Also featuring commentary from our economists
October 19, 2025
Candace Browning, Head of BofA Global Research
Every voyage demands balance between the pull of the current and the promise of the horizon. This week, we highlight the potential for an underappreciated policy pattern shift out of Washington, spotlight downstream winners from Pharma’s reshoring-driven capex wave, adjust our headings for 3Q earnings, and sail toward clearer skies in senior housing REITs.
Last week, we hosted our flagship Emerging Markets Small Talks Symposium in Washington, D.C.
The mood was cautiously optimistic. Investors are of the view that global excess liquidity is a big driver of risk, and anything that tightens it could have widespread repercussions. There was renewed interest in understanding the Supreme Court’s ruling on IEEPA (International Emergency Economic Powers Act) tariffs. Legal experts say predicting the outcome is too difficult and foresee three possibilities: 1) the court rules that IEEPA prohibits tariffs, 2) the court defers to the Executive branch on determining what is a national emergency, or 3) the court finds some tariffs are legal and others aren’t. Treasury Secretary Bessent estimates ~ $70 billion in potential refunds. A ruling could come as soon as December. In the event of an adverse ruling, they expect the administration to enact tariffs under existing trade authorities, though legal challenges could exist for those, too.
Major pharma’s commitment to reshore over $450 billion into U.S. capex and R&D marks a potential inflection for Life Sciences & Diagnostic Tools (LSTs).
Over the past five years, large-cap pharma spent nearly $1 trillion globally; directing nearly half that to the U.S. implies incremental capital, not just reallocation. Life Science Tools & Diagnostics Analyst Michael Ryskin’s framework shows the pledged outlay concentrated in a few pharma giants with additional projects likely. Mike determined that most spending targets manufacturing, with facilities coming online in 2029-30. For Tools vendors, upside centers on instrumentation, process-control systems, and quality testing platforms purchased near project completion, positioning 2027-29 as the revenue window.
Earnings are upon us and Head of U.S. Equity and Quantitative Strategy Savita Subramanian sees another of season of strong beats for the S&P 500 — though she stresses that guidance will drive returns.
After a 7% beat in 2Q, consensus expects EPS (earnings per share) growth to slow from 11% y/y to 8%, but Savita projects +11% y/y (a 4% beat) on resilient macro data, strength from early reporters, upbeat guidance, and a weaker USD. Analysts typically cut estimates by 3-4% during the quarter but this time, 3Q estimates have flatlined, leading to the first “no-cut” quarter since 3Q 2023. The 3-month guidance ratio (1.3) is the highest since 2021. Consensus expects Tech to remain the growth engine (+20% y/y vs. +3% ex-Tech). Key watchpoints include AI monetization vs. capex intensity, consumer bifurcation, and tariff headwinds. On the latter, Savita’s tariff-shock scenario shows 7% earnings hit from levies in place prior to the China/U.S. re-escalation, 14% under an additional 100% tariffs on China goods, and 23% if China retaliates – an outcome equivalent to a mild recession.
The first of the Baby Boomers will turn 80 years old next year, and over the next 15 years, the number in this age group is set double, fueling years of increased demand for independent living facilities.
Healthcare REITs Analyst Farrell Granath’s analysis suggests that margins for the five senior housing operating platform (SHOP) REITs will reach a record high 39% by 2028, surpassing both consensus and current margins of around 28%. As a result, we raise our price objectives and FFO (fund from operations) estimates for the five SHOP stocks in our coverage. Looking ahead, estimates for Welltower (WELL) now exceed consensus by 30% in 2029, while Ventas (VTR) is 10% ahead.
Claudio Irigoyen, Head of Global Economics, BofA Global Research
Global Letter: Uncertainty strikes back
The recent escalation with China and U.S. tariff threats of 100% bring further risks to the outlook. In our view, the most likely scenario is that the escalation proves largely transitory, with the Trump administration increasing pressure ahead of the scheduled meeting with President Xi. However, trade-related uncertainty is on the rise again, underscoring our view that going back to normal will remain elusive. Not least because the Supreme Court ruling on IEEPA could materially shift the outlook.
United States: Re-naming the dots
We tweak our estimates of who's who on the 2025 dot plot, based on the latest Fedspeak. Powell and Waller matter most. Powell most likely wants to cut in Oct. and Dec. But we think the data (if we get it) will change his mind for Dec. Waller is still very dovish, though he seems to be taking on board the strength in GDP. Among the regional Fed Presidents, Williams has been more dovish than we were expecting. The rotation of voters next year is unlikely affect the policy path.
Euro area: Uncertainty is back…but it never went away
Uncertainty may have reduced since summer, but we doubt it will fully normalize to pre-trade-war levels. Alternative uncertainty measures are stuck at higher levels, likewise survey-based dispersion. Higher saving intentions are a consequence (and a downside risk). Accommodative policy rates should follow, we think.
Latin America: Mexico — higher tariffs and taxes
Mexico will likely raise excise taxes (sodas, tobacco) and tariffs on almost 1,500 items for countries without an FTA. Higher revenues help Mexico's fiscal position, but we estimate an impact of about 27bp on inflation, with upside risks. Potentially higher inflation is an upside risk to our call for 6.00% Banxico rate for 2026.
