Despite sharply deteriorating economic sentiment, Bank of America believes equity markets could deliver a 17% return over the next 12 months—so long as the U.S. avoids a recession.
The firm points to a widening disconnect between bearish sentiment indicators and resilient underlying economic data. This divergence, it argues, may represent a contrarian buying opportunity for advisors and clients who can look past the current noise in consumer and business confidence.
“Historically, when weak sentiment data did not result in an actual recession, U.S. equities returned 17% on average and credit markets gained 8% in the following year,” Bank of America’s Research Investment Committee noted in a recent report. “These outcomes outperformed long-term averages and signal potential upside if macro deterioration fails to materialize.”
Currently, that divergence is especially stark. April’s ISM Manufacturing Purchasing Managers Index (PMI) fell to 48.7, marking the second consecutive month of contraction and pointing to a cautious manufacturing outlook. Survey participants cited uncertainty surrounding tariffs and a restrained business investment climate.
Consumer sentiment is similarly bleak. The Conference Board’s Consumer Confidence Index dropped sharply in April, with its Expectations Index hitting its lowest level since 2011. That reading typically signals recessionary risk on the horizon.
But BofA argues that sentiment surveys—classified as “soft data”—are not corroborated by “hard data” that reflects actual economic activity. On that front, signals remain encouraging: jobless claims are low, wage growth is outpacing inflation, credit spreads are contained, and the U.S. dollar remains stable. The firm calls this the “largest gap on record between bearish surveys and bullish fundamentals.”
Bank of America does not anticipate a recession forming in 2025. Its view is gaining traction among economists, particularly in light of the temporary tariff truce announced by the Trump administration and Chinese officials. The agreement has de-escalated a significant source of market volatility and recessionary fear.
In Q1, GDP growth came in weaker than expected, but BofA attributes that softness largely to front-loaded import activity driven by tariff concerns. The bank expects Q2 to mark a turning point, projecting a rebound to 2% annualized GDP growth, with reduced demand distortions and improving trade dynamics.
If this thesis holds and no recession occurs, BofA sees the S&P 500 advancing to roughly 6,900—a notable jump from current levels. For advisors with clients sitting on the sidelines or underweight equities, this may represent a timely reentry point.
In addition to the recession-avoidance scenario, BofA outlined several tailwinds that could further support risk assets over the coming quarters:
Trade Progress: With tariffs temporarily paused, additional trade diplomacy could provide relief to supply chains and boost corporate investment confidence.
Pro-Growth Policy Pivot: The White House is signaling a renewed emphasis on domestic growth via potential tax cuts and deregulation—two levers that historically have supported risk-on positioning.
Onshoring Trends: Firms are increasingly shifting production away from emerging markets and back to the U.S. This transition, while uneven, is creating pockets of investment opportunity in domestic industrials, logistics, and infrastructure sectors.
Advisors should also be mindful of the cyclical dynamics at play. While headline sentiment remains negative, BofA notes that inflection points in equity markets often occur before improvements are visible in lagging indicators like consumer surveys or manufacturing orders.
“We see an environment where being positioned for upside makes sense—especially if recession fears are overdone,” the bank said. “In previous instances where the economy skirted contraction despite bearish sentiment, markets rewarded forward-looking investors.”
That said, BofA acknowledged that not all indicators are pointing north. The sentiment drag from the ISM and Conference Board data is historically significant, and downside risks persist if trade tensions flare back up or if inflationary pressures return unexpectedly.
Still, the current macro picture, while mixed, has not yet confirmed a contractionary phase. And in that ambiguity lies opportunity for investors prepared to allocate amid uncertainty.
For wealth advisors, the message is clear: market sentiment alone is not destiny. If fundamentals hold and recession risks fade, a reacceleration in risk assets—particularly equities—could unfold. That positions the current market not as a time for retreat, but as a potential moment to revisit strategic allocations with clients and lean into opportunities that soft data may be obscuring.
