According to analysts at Bank of America Securities, a best-case scenario for stocks involves slowing GDP and accelerating earnings growth.
In a research note Tuesday, the investment bank said the equity cycle feels different than the macrocycle today.
"While GDP and the labor market seem to be slowing, earnings are accelerating (LTM EPS +3% YoY)," notes BofA. "Moreover, BofA's three quantitative models all suggest a strengthening upcycle in equities."
With first-quarter earnings for the S&P 500 97% done, the EPS has beat consensus by 3%, rising 7% year-on-year. BofA highlights that while the Magnificent 7 led the beat, the other 493 still delivered, with all 11 sectors except for Healthcare topping expectations.
"Historically, a slowing GDP + accelerating EPS backdrop has been the best macro environment for stocks," they add. "The divergence is mainly coming from improving manufacturing vs. slowing services, in our view. With a manufacturing recovery underway, improving fundamentals should continue to support the market."