Must Read Research
May 3, 2026
Candace Browning, Head of BofA Global Research
This week, we get out of the gate discussing the well-trodden AI debate and why we believe it's likely to reshape work rather than end it. S&P earnings beats coming in at a faster clip than usual, but even though Medicaid managed care stocks got off to a slow start, we see a faster pace of growth ahead.
Around 60% of jobs today did not exist in 1940, reinforcing Economist Benson Wu and our Global Economics Team's view that AI isn't an end-of-work story, but rather the next major reshaping of the labor market.
The scale is huge: A quarter (~840 million) of jobs globally are exposed to AI, with 442 million in APAC alone. Nevertheless, the distribution of benefits seems counterintuitive, with aging economies like Europe's poised to gain the most as AI offsets shrinking workforces. Even in highly AI-exposed jobs, companies are still hiring for human skills: 72% of openings require management skills, and 67% business-process skills. At the same time, the gap between what AI could do and what it currently does remains wide. LLMs are capable of far more tasks than are being automated in practice, implying disruption is still in the early innings. Therefore, adaptability, lifelong learning, and policy design will be the key differentiators in workforce outcomes.
The busiest week of earnings is now behind us, and about 3/4 of index earnings have been released.
74% of companies beat on EPS (earnings per share) with 78% beating on sales. Beat rates are similar to 2Q and 3Q 2025, which were the best quarters since 2021. While trends are strongest in Big Tech, the median stock is also tracking earnings gains of 11% year-over-year in 1Q, the highest growth in five years. The up-versus-down guidance ratio is above average and only four sectors saw more downward guidance. Hyperscaler capex again beat consensus and our analysts project 67% growth.
Healthcare analyst Kevin Fischbeck upgrades three Managed Care stocks on the view that Medicaid margins are bottoming in 2026 and that they'll improve over the coming years.
Historically, when margin visibility improves, much of the stock rally tends to happen in year one. Today's negative margins largely reflect the reversal of COVID-era tailwinds, when medical enrollment surged, profitability expanded, and the risk pool improved. The unwind began in 2023 when states were allowed to drop people from Medicaid and utilization increased. By 2025, Medicaid enrollment was down 19% from the peak. However, margins should improve from here, as the worst of the risk pool shift is likely behind us and lagged rates adjust higher.
Featuring Commentary from Global Economics Weekly
Claudio Irigoyen, Head of Global Economics, BofA Global Research
The effective tariff rate has fallen by more than 2.5 percentage points
The effective tariff rate peaked in October 2025 at 11.3%. It was already falling in the run-up to the IEEPA (International Emergency Economic Powers Act) ruling, and has taken a big leg down thereafter, coming in at 8.7% this March, based on February imports. In fact, the daily Treasury receipts data point to a further decline in April.
Section 232 and 301 measures should lead to country-sector-specific tariffs gradually gaining ground versus blanket tariffs, which could make it challenging to fully recoup lost revenues. In addition, country-sector-specific tariffs may create incentives for trade diversion and be subject to more exemptions, which could lower effective tariffs. In our view, considering that observed tariff revenues tend to fall somewhat below our theoretical estimates, the U.S. effective tariff rate is likely to settle in the 6-8% range by the end of the year.
Our tariff base case is likely second-order for the outlook
To the extent higher tariffs were a headwind to growth, a partial removal should be a tailwind. However, with most of the tariffs last year having already passed through to inflation, downside risks to inflation seem minimal in the short term. While firms may choose to delay future price increases in coming years, we do not expect them to lower prices substantially in response to lower tariffs.
As a result, we still see core PCE (personal consumption expenditures) inflation at 3.1% by end-2026, with no material impact from tariffs on growth. In turn, as we have noted, the fiscal deficit should be back above 6% of GDP (gross domestic product) amid lower tariffs and tariff refunds.
