A 'crucible of confusion' with no historical precedent is weighing on the economy, BofA says

If you feel like you can’t keep up with all of the competing forces driving financial markets right now, you’re not alone.

In a note to clients last Friday, Bank of America said there’s never been a macro environment quite like this, and that the myriad forces pushing and pulling on the economy is unprecedented.

“There probably isn’t any historical precedent for the plethora of shocks buffeting the US economy,” Bank of America said analysts wrote, pointing to positive and negative shocks to the economy right now that are muddying the waters for investors.

Negative supply shocks include the Iran war and its impact on oil prices and inflation; President Donald Trump’s tariffs; and restrictive immigration policy. On the positive side, AI technology is increasing productivity.

On the demand side, the bank highlighted two boosts for the economy: the massive amount of AI capex being pumped into the economy, as well as the tax cuts in the One Big Beautiful Bill Act.

But that’s not all. Increased consumer spending during the FIFA World Cup this summer could mask the economy’s true state until later this summer, the bank said. Plus, it may be difficult to know which direction incoming Federal Reserve Chair Kevin Warsh will take monetary policy, given his recent dovishness despite a long track record of hawkish views.

It all amounts to what BofA called a “crucible of confusion” for investors.

“Our core view has been that these shocks (particularly on the supply side) fatten the tails of the economic and policy distribution. This means conviction should remain low because the probability of switching between vastly different regimes is high,” the note said. “Indeed, the recent data flow has shifted the market narrative from ‘stagflation’ to ‘reflation.'”

What’s an investor to do? That always depends on who on Wall Street you ask, but Bank of America’s equity strategists see a rocky road ahead for the stock market. High forward earnings growth expectations imply -6% returns for the S&P 500 over the next 12 months, the bank said in a client note on Monday.

On sector level, BofA labeled specialized REITS, metals and mining, interactive media services, healthcare providers, entertainment, and banks as “opportunities” due to their attractive valuations, positive earnings revisions, and stock price momentum.