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Investing.com -- Bank of America analysts said they continue to see signs of “positive equity returns over the longer term,” citing improving corporate efficiency, stronger fundamentals, and a “higher quality corporate sector than prior cycles.”
In a note on Monday, analyst Savita Subramanian told investors that its U.S. Regime Indicator “barely extended its Recovery (‘risk on’) phase,” as mixed signals left the market in a delicate balance.
While four indicators improved and four declined, the analyst added that sentiment remains contained and its earnings outlook is positive.
The report highlighted the “Corporate Misery Indicator” as a key gauge of macro conditions, reflecting trends in demand, pricing, and cost pressures.
It “remained weak in 3Q as demand remains sluggish and wage inflation and pricing power are now neck and neck,” Subramanian wrote.
The analyst also examined two conundrums facing markets: the balance between AI-driven efficiency and consumer resilience, and the rising capital intensity of major technology firms.
“If AI drives efficiency, our quantitative work corroborates the bull case for the tools and the companies that use them,” the note stated, adding that efficient firms “recently delivered outsized returns of 8ppt in 3Q.”
However, BofA warned that efficiency gains could come “with waning demand for middle-income white collar jobs,” posing a potential risk to consumption.
On valuation, the bank noted that “MSFT, AMZN, GOOGL, META and now ORCL mostly trade near record multiples,” with combined capital expenditures relative to operating cash flow “equivalent to U.S. oil majors’.”
Despite these tensions, Subramanian said Value factors “fared best for the quarter,” underscoring ongoing opportunities for long-term investors.