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Investing.com -- The potential for near-term U.S. fiscal support may help cushion markets against escalating trade tensions, according to analysts at Bank of America.
While BofA’s economists view the recently passed U.S. budget bill as having a “neutral fiscal impulse” for fiscal year 2025, they noted it could generate a temporary $100 billion cash-flow boost for U.S. corporates through bonus depreciation.
“This matters, as it would help to soften the growing profit pressures for corporates resulting from the sharp increase in tariff payments,” said BofA.
The measure may also reduce the risk of weaker economic activity from companies cutting spending to protect margins.
Despite this support, BofA warned that “U.S. / global growth risks [are] skewed to the downside,” pointing to a range of headwinds that could slow domestic demand.
These are said to include “the risk of a further rise in the effective tariff rate, the impact of trade uncertainty on corporate spending, weakening immigration dynamics and the recent negative turn in the U.S. fiscal impulse.”
If U.S. growth decelerates in line with forecasts, global momentum could falter, particularly with “weaker China and still-weak Euro area growth ahead,” BofA said.
In equities, BofA remains cautious, forecasting “10% downside for the Stoxx 600 over the coming months” and further losses for European cyclicals versus defensives.
The bank continues to prefer defensive sectors such as pharma and food and beverages, and sees cyclical downside for financials and capital goods, while calling luxury, mining and semiconductors “attractive cyclical hedges.”