U.S. stocks lower as investors rotate out of tech ahead of Jackson Hole
Investing.com -- Bank of America analysts have outlined a bullish outlook for equities, urging investors to focus on traditional sectors as part of a broader strategy to capture stock market upside.
Despite the increasing dominance of passive investing, BofA sees opportunities in sectors that have been historically undervalued.
“Own the old economy for equity upside,” said the bank.
The analysts emphasize that "real economy sectors comprise just 27% of the S&P 500, nearly 20ppt below historical norms," suggesting that a "great reversion in the US" could provide significant upside.
BofA specifically points to "defense, SMID cap industrials, liberated banks, natural gas for today, and nuclear for tomorrow" as key areas for growth.
Furthermore, the firm highlights positive earnings trends, with "89% of S&P 500 companies to have positive EPS growth by 4Q25."
This broadening profit growth, coupled with the ISM PMI showing expansion for the first time since October 2022, is said to strengthen BofA’s case for equity investment in the near term.
Although risks remain, such as the potential for AI expectations to fall short, the analysts stress that "high valuation & concentration alone are not good reasons to sell." Instead, they advocate for focusing on "Quality" and staying attuned to "equal- vs. cap-weighted returns for signs of a shift."
BofA encourages investors to diversify their portfolios by owning traditional economy sectors, with expectations of strong equity performance driven by a potential reversion in market dynamics.