Must Read Research
February 22, 2026
Candace Browning, Head of BofA Global Research
This week, we dig into veterinary traffic trends, assess how much bigger the emerging market rally could get, unpack themes from the record crowds at our Financials Conference, and evaluate where AI-driven concerns may be creating opportunity.
Veterinary visit weakness appears more structural than a post-COVID phenomenon.
Michael Ryskin's (Life Science Tools & Diagnostics Analyst) review shows traffic deceleration dating back to 2015, well before the lockdown-era surge that briefly masked it. Industry consolidation is a key driver: corporate and private equity roll-ups increasingly relied on pricing for revenue and margin expansion while testing affordability. Now, higher sticker prices are prompting deferrals in discretionary veterinary care such as wellness visits, dentistry, and elective diagnostics. Macro-pressures are compounding the issue, particularly among lower-income households. Roughly 70% of pet owners cite cost as the main reason for delaying or skipping visits in 2025. Softer dog adoptions, which typically drive higher care utilization, add further volume risk. Michael expects visit trends to remain pressured into 2026.
At our 34th Annual BofA Financial Services Conference in Miami, marked by record client and corporate attendance, management tone was broadly constructive.
Bank executives cited accelerating loan growth, improving capital markets pipelines, and a more balanced regulatory backdrop. AI adoption was a recurring theme, with firms adopting AI tools to boost productivity amid rising competitive pressure from peers aggressively deploying the technology. Insurance brokers and carriers characterized the recent selloff tied to AI-powered insurance apps as overdone, arguing that productivity gains outweigh disruption risks. Brokers, asset managers and exchange executives also debated AI exposures, particularly alternative managers' lending to software companies and intensifying price competition in wealth management. Still, management teams emphasized efficiency gains and emerging opportunities in data centers and energy infrastructure. Consumer finance companies noted a resilient U.S. consumer, but acknowledged the persistent K-shaped recovery, viewing AI as an operational lever rather than an existential threat.
We reinstated coverage on 19 Information & Business Services stocks, with AI emerging as the sector's defining theme, posing disruption risk and offering new opportunities.
Historically trading at a premium to the S&P 500, the sector has derated sharply on AI concerns and now sits roughly 35-40% below its 5-year average adjusted P/E (price to earnings). As a result, the group now trades at a discount to the market for the first time in a decade, creating a compelling entry point, according to U.S. Information & Business Services Analyst Curtis Nagle. His top picks benefit from recurring revenues, dominant market positions, high switching costs, and structural moats rooted in proprietary data and regulatory barriers. Many stocks in this sector also benefit from AI, as their data assets, workflows, and regulatory roles are difficult to replicate, given the high error costs of generic AI tools alone.
Claudio Irigoyen, Head of Global Economics, BofA Global Research
Downward shock to U.S. tariffs
Last week, the U.S. Supreme Court ruled tariffs imposed under IEEPA (International Emergency Economic Powers Act) to be unlawful. In the ruling, reciprocal and fentanyl tariffs were struck down, but not sector-specific tariffs. Our base case is that tariffs will be partially replaced. We estimate a 1.5 percentage point drop in U.S. effective tariffs, incorporating President Trump's latest announcements. Our estimate for the effective tariff rate now is approximately 11.5%, down from 13%. But considering the observed gap with collected revenues, we could land at an effective tariff rate closer to 8-9%.
Sectoral tariffs to replace blanket ones
In line with our view, President Trump imposed blanket tariffs under Section 122 shortly after the ruling and announced that the administration will launch new Section 232 and Section 301 investigations. This should lead to sector-specific tariffs gradually gaining ground versus blanket tariffs. This means that sectors with scope for national security investigations could be losers on net, while consumer sectors could benefit.
Another uncertainty shock
For the outlook, the ruling and its aftermath will likely cause yet another uptick in trade-related uncertainty, though of smaller magnitude and shorter lived than what we saw last year. Part of the uncertainty lies in what could happen to bilateral trade deals. Our view is that in most cases, including the European Union, countries will not walk away but could sometimes delay implementation. But China appears to have gained the most leverage.
Small positive to the U.S. outlook
To the extent that higher tariffs were a headwind to growth, partially removing them should be a tailwind. However, we also expect an increase in trade-related uncertainty, both in the U.S. and globally, which could be a negative drag. In addition, the news should be mildly disinflationary in the short run. Retailers that already raised prices can stay at these levels for longer, while some that haven't might not need to. However, less supply-driven inflation could firm up demand, boosting sticky services inflation. Moreover, IEEPA was the offset for the OBBBA's (One Big Beautiful Bill Act) deficit expansion. If the tariffs aren't fully replaced, the deficit should move back above 6% of GDP (Gross Domestic Product). If refunds are also required, which is not clear so far, the impact on the deficit could be more marked in the near term. We estimate the impact on the U.S. fiscal deficit to be around 0.3-0.4% of GDP, though this largely depends on where tariffs land after Section 122 expires.
