Must Read Research
Also featuring commentary from Global Economic Weekly
March 23, 2025
Candace Browning, Head of BofA Global Research
Sentiment has made a fast break away from U.S. equities and the dizzying back and forth action on tariffs has also resulted in a cut to GDP (gross domestic product) forecasts. Meanwhile, company commentary at the Global Industrials Conference in London was generally in favor of Europe over the U.S. Pivoting to favorites on the court, whether it’s Duke, South Carolina or an upset you’re expecting, there’s a new group of companies happy to take your wager.
Our monthly Fund Manager Survey showed the 2nd biggest drop in global growth expectations we’ve seen and the biggest drop in U.S. equity allocation ever.
There was a big sentiment shift, away from U.S. exceptionalism and towards Europe, cash and staples, but positioning in bonds and cash doesn’t yet suggest extreme, “close your eyes and buy” levels for equities. Chief Investment Strategist Michael Hartnett believes that in order to see the S&P 500 rise from current levels in Q2, we’d need a reversal in inflation/trade war concerns while a recession would likely drive the S&P even lower from current levels. Regional and sector views have shifted significantly in a short period of time. The allocation to eurozone stocks is the highest since July ’21, allocation to staples is the highest in 18 months while respondents suggest their lowest tech allocation in 2 years.
Company commentary at this week’s Global Industrials Conference in London generally reflected improving sentiment in Europe but a more mixed view of the U.S.
There’s optimism around improving German infrastructure spending even if the impact won’t help earnings until next year. A German defense contractor highlighted conservatism in its sales guidance which already implies 50% growth from 2027 to 2030. As for the U.S., some companies suggested political uncertainty is driving customers to delay purchases. Presenters have generally not seen customers buying ahead of tariffs and U.S. residential and non-residential construction remains pressured. In civil aerospace, supply chain remains a key topic.
Since late December, prediction markets like Kalshi, Crypto.com and Polymarket have rapidly joined the U.S. sports betting scene.
These are exchanges that match buyers and sellers and typically collect a fee per transaction rather than calculating odds and taking a vig like a sports book. Prediction markets offer several advantages to existing online sports betting, including national scale, no state gaming taxes and no market access requirements. They also face challenges including liquidity, lower promotions and lower product depth as well as regulatory uncertainty. U.S. Gaming & Lodging Analyst Shaun Kelley believes that at best, these markets could be a complimentary product that drives new customers and expands the sports betting TAM (total addressable market). At worst, they could be disruptive new entrants. A court ruling last October helped enable these new offerings and a CFTC (Commodity Futures Trading Commission) roundtable and a ruling on Crypto.com’s sports contracts in late March/early April could be key catalysts for future adoption.
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Claudio Irigoyen, Head of Global Economics, BofA Global Research
Uncertainty is no free lunch
As we have been noting, the strike price of the Trump put, if it exists, is lower than expected. At least, a 10% sell-off in the stock market did not seem to trigger it. As to the other put that the market hopes for, we would not expect Powell and the Fed to do much (or anything) if inflation shoots up due to tariffs even if growth slows down. Of course, a recession could be a different story, but we are not there yet, in our view.
After updating our European growth forecasts to reflect the German fiscal and defense rethink, we follow suit with growth downgrades for the U.S., Canada and Mexico and a mild sequential tweak in China. The growth revisions seek to capture the impact of the policy uncertainty shock on spending and capex in the coming months as well as a more hawkish tariff stance. The forecast changes imply a downgrade of 0.1pp (percentage points) in global growth for 2025 and 2026 vs. our Year Ahead report, to 3.1% and 3.2%, respectively.
We now expect the U.S. to grow below potential in 1H25 while catching up towards 2% growth thereafter. The growth downgrades in Canada and Mexico reflect a combination of domestic factors and spillovers from the U.S. backdrop. In China, we remain at 4.5%, but with a weaker 1H25 and stronger 4Q25-1Q26. Overall, the global growth picture is marginally weaker, but risks remain tilted to the downside.
