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Investing.com -- Bank of America (BofA) has upgraded the European mining sector to Overweight, citing support from a weaker U.S. dollar and signs that China’s economic momentum may be stabilizing.
At the same time, the bank has turned more cautious on airlines, downgrading the group to Underweight due to mounting global growth risks and heightened geopolitical tensions.
Despite a backdrop of negative headlines, including ongoing global trade disputes and renewed military conflict in the Middle East, European equities remain near all-time highs.
According to BofA strategists, “these events have not yet translated into a clear-cut weakening in global growth,” as U.S. jobs data remain strong, inflation has not reflected tariff pressures, and global PMIs are holding steady.
Still, the Wall Street firm believes markets are underestimating the lagged economic impact of tariffs.
BofA remains positioned for weaker global growth momentum as tariff effects begin to take hold. The bank argues that the lack of visible economic damage so far is not proof that tariffs are harmless, but rather a sign that their full impact is yet to appear.
“The strain from tariffs, the drag on corporate capex from trade uncertainty and the reversal of the earlier boost to activity from front-loading is likely to translate into a slowdown in U.S. final private domestic demand growth over the coming months,” the strategists wrote.
As part of its revised sector view, BofA has downgraded airlines from Market Weight to Underweight, pointing to “the downside potential from weaker global growth and increased geopolitical risk.”
It also reiterated its preference for defensives over cyclicals, forecasting roughly 10% underperformance by cyclical stocks.
BofA sees about 10% downside for the Stoxx 600 to 490 in the third quarter, though it raised its year-end target to 530 following a partial U.S.-China trade truce.
On oil, the bank noted that a 15% price jump linked to Middle East tensions amounts to only a “moderate drag” on consumer purchasing power, and that a more significant spike would be needed to shift growth expectations.
However, the absence of inflation effects suggests margin pressures are likely to rise for U.S. corporates as tariff costs are absorbed, with added stress from rising net interest expenses.