Must Read Research
February 8, 2026
Candace Browning, Head of BofA Global Research
There are underdog stories beyond the football field. This week, we discuss how a broader swath of companies are beating earnings and detail how tax refunds could support stretched consumers.
With 75% of S&P 500 companies having reported, EPS are tracking a 5% beat with broader-than-usual outperformance (68% of constituents vs. 60% historically).
Top-line trends remain strong, with revenue ex-Financials and Energy on pace to grow 9% year-over-year, the fastest since 2022, while net margins expanded 40 basis points year-over-year to a record 13.3%. January's Sales Revision Ratio outpaced EPS (earnings per share) revisions (1.5x vs. 1.0x), suggesting that upward momentum in earnings is shifting towards operational leverage rather than just cost cutting or efficiency gains. Guidance has also been constructive, with the ratio of above- vs. below-consensus EPS guides (1.0x) tracking meaningfully above typical seasonal levels, led by Tech and Health Care. Meanwhile, employment service firms noted little evidence of AI-induced labor market weakness.
February is typically the peak month for tax refunds and we expect receipts to rise ~25% this year to $1,000 per household, on average.
The combination of higher refunds and lower tax payments supports our U.S. Economics team’s above consensus GDP (gross domestic product) estimates. While most income cohorts should benefit, U.S. Economics expects middle and higher-income households to benefit more, implying a somewhat lower-than-usual spending multiplier. That said, lower-income consumers have the highest propensity to spend, and past Bank of America card data suggests outlays skew toward non-discretionary categories, as well as apparel. Analysts therefore emphasize retailers exposed to staples and lower-income shoppers, though tighter SNAP eligibility is a partial offset. Higher-income households are more likely to allocate refunds to travel. Credit card issuers could also benefit via higher spend and improving delinquency trends.
Claudio Irigoyen, Head of Global Economics, BofA Global Research
A tale of 3 races
It is no longer a secret that the K-shaped dynamics of consumption, more markedly evidenced in the U.S. but taking place more broadly at a global level, are becoming increasingly dependent on the strong performance of financial and real assets. In the meantime, the world is witnessing three races with important implications for risky assets and interest rates: 1) the AI race; 2) the U.S.-China geopolitical race and 3) the private vs. public race for funding. They are all interconnected and are all critical to understand the potential multiple equilibria the global economy might end up landing.
United States: Mixed expectations for key sectors in 2026
Last week’s labor data was soft, but the weakness was narrow and driven by one-offs such as weather and year-end restructuring. In 2026, we think tighter immigration will keep job growth soft, even as demand firms on easing trade uncertainty and fiscal stimulus. Within sectors, we are positive on education & health, construction and trade & transport, negative on professional & business services (AI adoption), and neutral on leisure & hospitality.
Japan Lower House Election: First take and market implications
In the Lower House election held on Sunday, February 8, the Liberal Democratic Party (LDP) achieved a landslide victory. The LDP's landslide victory is expected to support higher USD/JPY alongside strength in domestic equities. Markets had partially priced in an LDP single-party majority, but not the scale of the outcome. Equities are likely to interpret the election result as implying expansionary fiscal policy and increased political stability. FX flows from foreign investors' hedge adjustments are expected to generate net USD/JPY (Japanese Yen) demand. FX traders are unlikely to adopt a contrarian or complex interpretation that diverges from the equity market's initial reaction.
Euro area: Forecast update — easing bias in practice
We raise our growth forecasts to 1.2% (+20 basis points) for 2026 but cut to 1.3% (-10bps) for 2027, reflecting a strong, but short-lived German fiscal growth peak. Persistent inflation undershoot remains the base case. We take out the ECB cut in Mar-26 but add two in 1H27.
