BofA update shows where active managers are putting money
Investing.com -- Investors may have dodged the worst of the geopolitical shocks, but a new test is coming: tariff hikes are set to hit the U.S. economy in the second half of the year, threatening a growth slump but also teeing up the Fed for long-awaited rate cuts—and adding fresh fuel to the AI rally as institutional money keeps chasing the trade.
“A scenario of resilient macro outlook, a ‘higher for longer’ narrative and broadening AI theme should put upward pressure on risk assets especially if the macro shock from tariffs is moderate and absent further escalation on the geopolitical front,” J.P. Morgan strategists wrote in their mid-year outlook.
While tariffs are expected to slow growth, the strategists said, cutting their U.S. GDP forecast to 1.3% from 2%, a healthy business sector and strong corporate profits should cushion the blow.
This backdrop sets the stage for the Fed to begin easing policy, with rate cuts likely starting in December and continuing into early 2026, though inflation pressures mean the Fed won’t return rates fully to neutral anytime soon.
"We expect the Fed will cut rates at the December FOMC meeting and we look for an additional three consecutive cuts early next year before reaching a resting spot at 3.25-3.50% for the funds rate target," they added.
The AI theme, meanwhile, is gaining momentum and will likely serve as a key driver of market gains. J.P. Morgan points to strong fundamentals in tech and AI sectors, with “a steady bid from systematic strategies, and flows from active investors on dips” now supporting the rally. While retail and corporate investors led the initial rebound after the tariff shock, institutional and systematic money is now driving the next leg higher.
Even as economic growth slows and market leadership narrows, the broadening AI theme is expected to accelerate, with the potential for greater productivity and efficiency gains—but also more disruption across global industries.
The second half of 2025 looks set for a tug-of-war between tariff-driven growth headwinds and a powerful AI-led market rally, with Fed rate cuts providing a crucial tailwind for investors riding the tech wave.