A Bank of America investment chief overseeing $2.3 trillion is calling for new highs in US stocks. Here are the areas he thinks are best primed for growth.

  • Chris Hyzy — the chief investment officer at Bank of America’s Global Wealth and Investment Management division, where he oversees $2.3 trillion — makes a compelling case for the continuation of the longest bull market in history.
  • He shapes his view for the bull market’s preservation around a growing divergence between global economies.
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As the US stock market plows ahead into its 10th straight year of expansion, it’s become exceedingly easy for skeptics to call for its demise with each day that passes.

The late-cycle chatter has been exacerbated byPresident Trump’s trade war, an inverted yield curve, and irresolute central banks. And after the best start for US stocks since 1997, many prominent investors are starting to peel back their expectations for the rest of the year.

But not everyone thinks the equity bull market is on its last legs.

Chris Hyzy, the chief investment officer at Bank of America’s Global Wealth and Investment Management division, is predicting a robust second-half of 2019 for US equities — and he’s focusing his call around a “great divide” he sees building between economies.

“This imbalance occurred largely because the US economy has been relying more heavily on the consumer, small businesses and housing, and has a much healthier banking system, whereas the ROW has been more levered to manufacturing and trade, which have been weakened by the trade war,” he said in a recent client note.

Hyzy concludes the equity outlook for the US looks much more favorable. While expectations dampen around the global economy, Hyzy highlights three tailwinds that can push US indices to new highs.

1. Federal Reserve policy

“The Federal Reserve (Fed) was recently on course to raise interest rates again, as it did last year, but it has been signaling a reversal in policy and is very likely to lower rates instead,” he said. “This is not typical of a late stage.”

The Fed’s propensity to slash interest rates has been one of the primary catalysts for the recent rally in stocks — there’s no denying that. And although it’s difficult to tell how accurately expectations are currently priced in, the fact that the FOMC stated they would “act as appropriate to sustain the expansion” provides an extremely favorable backdrop for the bull’s continuation.

2. Inflation

“Inflation is very low and actually falling, rather than being elevated and rising, as in a late stage,” Hyzy said.

The chart below shows Personal Consumption Expenditures — the Fed’s preferred measure of inflation — since 2009. It continues to run well below the 2% target rate.

BAML

Hyzy points to the inverted yield curve as a result of declining inflation expectations, not an outright recession.

In addition, lower inflation expectations lead to lower rates, making the capex environment all the more conducive to growth.

3. Valuations

“Equity valuations appear constrained—in part by high geopolitical risk and political uncertainty (think trade wars, Brexit, instability in the Middle East, Italy and its future in the European Union (EU))—rather than being overvalued at the end of a cycle,” he added.

Sentiment is nowhere near euphoric on the Street, bolstering Hyzy’s view. This is a welcome sign, as investors tend to become overzealous towards the pinnacle of market cycles.

The chart below provides real-time look at marketplace sentiment.

Against that backdrop, Hyzy delivers his preferred allocations: US large cap stocks with a blended mixture of value and growth factors, short-dated investment-grade corporate bonds, and minimal exposure to emerging markets.

BAML

Get the latest Bank of America stock price here.

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