BCA said in its latest macro outlook that U.S. equities are still reflecting strong growth, while the Treasury market is trading policy sentiment coming out of the White House. Its core view is that the U.S. economy has not shown a clear deterioration in fundamentals, the AI capex cycle is not over, and it is too early to turn broadly bearish on U.S. stocks.
Bond selloffs were driven by policy shocks rather than a breakdown in fundamentals
BCA said the U.S. bond market has gone through three notable selloffs over the past two years. The first came around the 2024 U.S. presidential election, when investors worried that Donald Trump’s return to office could widen fiscal deficits. The second followed the announcement of the so-called Liberation Day tariff policy, which raised concern that high tariffs could hurt both growth and government revenue. The third was tied to uncertainty around U.S. policy toward Iran.
In BCA’s view, the common catalyst across all three episodes was political or geopolitical stress, not a recession, not a renewed loss of control over inflation, and not a sudden hawkish shift by the Federal Reserve. The report also said foreign holdings of U.S. Treasuries have remained broadly stable, with no sign of large-scale selling by either China or Japan. On that basis, BCA said there is no clear evidence of a global flight out of Treasuries.
The firm acknowledged that greater bond supply has added pressure, especially as AI companies raise more capital and corporate bond issuance grows quickly. Still, it said that factor alone does not fully explain the move higher in yields. BCA pointed to nominal and real U.S. growth rates that remain above the 10-year Treasury yield, low household leverage, and corporate financing activity that has not obviously frozen. In its reading, interest rates are not yet high enough to end the expansion.
BCA therefore expects that if U.S. policy toward Iran comes to be shaped more by officials focused on market stability, including Treasury Secretary Bessent, the geopolitical risk premium could ease and the room for another sharp rise in Treasury yields may be limited.
AI capital spending may still have three to five years left
BCA described AI capital expenditure as one of the key supports behind the resilience of the U.S. economy. It said software and hardware investment contributed 0.8 percentage points to U.S. real GDP growth in the first quarter of 2026, the highest contribution seen this century. Even so, the report said current capex intensity has only just approached the level seen during the information technology investment cycle of the 1990s.
From that comparison, BCA concluded that the AI capex cycle may still have another three to five years to run instead of being close to exhaustion.
The report laid out what it called a seemingly contradictory view. Even if the business models of frontier large language models come under pressure, spending on underlying compute could keep expanding. BCA argued that open-source models and price competition are likely to push down AI usage costs. That may hurt margins at some model companies, but it could also allow a wider group of enterprises to deploy AI. Lower model prices, in turn, may lift total compute demand and data-center demand through demand elasticity.
Put differently, whether model developers earn high profits is not the same question as whether investment in chips, electricity and data centers can keep growing. BCA said enterprise AI adoption is still rising, data centers are beginning to demonstrate commercial viability, and power demand is growing again after years of stagnation. To the firm, those are visible signs that AI investment is already affecting the real economy.
BCA did acknowledge that every major technology investment cycle eventually runs into overbuilding. Railroads, the internet and telecom infrastructure all went through that process. Still, if the current cycle is compared with the 1990s, the firm said AI capex may be only about two-thirds complete. Even if the market is now in the back half of the cycle, exiting too early could mean missing the most concentrated gains at the end.
The report added that the more important turning point may come when large technology companies begin to list in clusters. Historically, very large IPOs have often signaled a rapid increase in equity supply and have appeared close to cyclical peaks. If a heavy IPO calendar were to coincide with synchronized global central bank tightening, BCA said that combination could become a much clearer warning sign.
U.S. equities still have earnings support, but the risks sit outside the core growth story
BCA said it remains tactically constructive on stocks. The report cited strong U.S. growth, still-ample global liquidity and low private-sector leverage. It also said the current equity rally has been driven mainly by corporate earnings growth rather than a pure expansion in valuation multiples, which makes the setup different from the late-1990s bubble phase.
On inflation, BCA said it does not see an immediate threat as long as energy prices do not break persistently above their current range. The firm said inflation pressure has probably peaked. It also noted that U.S. labor-market models are strengthening and could lift wages later on, but in its view that looks more like a 2027 risk than something markets need to trade right now.
Consumer demand remains another support. BCA said U.S. households still show a strong willingness to spend. Markets have long expected the savings rate to rise again, but the report argued that household consumption behavior may have changed structurally, meaning the savings rate may not revert in line with traditional models. That leaves consumption able to support growth, though it also means household buffers are getting thinner.
The report also described a possible Chinese fiscal expansion as a positive black swan. According to BCA, local government bond issuance has lagged while investment growth has slowed sharply, conditions that could push the central government to step up support around the October Politburo meeting. If policy support exceeds market expectations, the firm said it could benefit Chinese assets, global manufacturing and commodity demand at the same time.
Hormuz disruption has eased, but energy pressure remains
BCA said markets often focus on the absolute level of geopolitical risk and miss changes in direction. When a conflict remains serious but the pace of deterioration slows, risk assets often begin rebounding from their lows.
The Strait of Hormuz, in BCA’s telling, is an example of that pattern. Based on shipping information obtained by the firm, vessels are still able to move through the strait, though transport costs have risen from about $1 under normal conditions to roughly $12 to $15. Trade flows, U.S. commercial crude inventories and Chinese import data also indicate that crude is still moving through the waterway and that the degree of supply disruption has eased.
BCA said this points to a new dynamic equilibrium in the Persian Gulf. Local military actions may continue to recur, but all parties remain constrained by oil prices, domestic politics and global energy demand, which makes a full interruption of traffic through the strait less likely.
The firm went a step further and argued that oil is not just an outcome of conflict in this phase; it is also acting as a restraint on conflict. When oil prices fall, the U.S. and Iran have more room for military action. When oil rises to levels that could hit the global economy, restraint tends to increase. BCA said this dynamic could leave Brent crude trading in a new range of about $85 to $100 a barrel.
That does not mean the energy shock is over. BCA said that, because of the combined effects of the Hormuz crisis and the Russia-Ukraine war, U.S. refined product inventories remain low and refining crack spreads remain elevated. Gasoline and diesel prices could keep acting like a tax on household purchasing power and may also affect the U.S. midterm elections.
BCA is more worried about Russia than Iran
Compared with Iran, BCA said the larger geopolitical risk may come from renewed escalation in the Russia-Ukraine war. The report said Ukraine’s expanded drone operations are breaking the battlefield balance that had held for the past three to four years and are directly touching Russia’s energy exports and domestic political stability.
BCA argued that the pressure the war is putting on Russia’s economy and society is already materially greater than the relative burden the Vietnam War placed on the United States. If oil prices stay high, Russia would have more fiscal resources to fund the war and could also conclude that the West has less room to impose harsh restrictions on its energy exports. In BCA’s view, that could increase the incentive to escalate.
In the near term, Russia may prefer deniable tools such as drones, cyberattacks, sabotage of energy facilities and other hybrid warfare methods. If domestic pressure keeps building, however, actions could shift from covert to overt. BCA said European energy costs and Russian export facilities are among the key indicators to watch in the coming months.
U.S. relative strength may narrow, and capital could rotate globally
BCA’s most important long-term call in the report is a continued preference for markets outside the United States. It stressed that this is not a simple sell-America trade. The U.S. will remain a major economic and financial power, and the dollar is not about to suddenly lose reserve-currency status. Even so, BCA said U.S. assets have become too large a share of global portfolios, and changes in growth differentials and fiscal policy argue for a rebalancing of capital.
The firm identified 2025 as an important signal year. Even though the U.S. remained the center of AI investment, U.S. assets underperformed other markets and the dollar fell by about 10% over the year. BCA said that was not a random move but the start of a longer trend.
The report challenged the view that America’s post-pandemic growth advantage was mainly a story of better productivity. In BCA’s assessment, fiscal expansion was the more decisive variable. During the pandemic, the U.S. deployed far more fiscal resources than other major economies. Those outlays lifted output, corporate profits and output per hour worked, while also supporting the relative performance of U.S. equities versus the rest of the world.
That logic is now starting to reverse, according to BCA. The bond market has already issued a warning on fiscal expansion, and voter concern over deficits and debt is approaching Tea Party-era levels. In the report’s view, fiscal expansion under Trump’s second term is already facing visible constraints, government spending has remained weaker than expected, and the fiscal impulse is flattening.
If the U.S. no longer relies on large fiscal outlays to preserve its growth lead, its advantage over Europe, China and other economies may narrow. BCA said exchange rates and cross-border capital flows usually follow relative growth shifts, which would weaken the long-term case for both the dollar and U.S. assets to keep outperforming global markets.
The 2020s still favor commodities and real assets
BCA said the world has entered a long capex cycle driven by multipolarity, supply-chain reconfiguration and national security spending.
According to the report, countries are spreading supply chains away from a single center, reducing reliance on China and increasing spending on defense, energy, manufacturing and infrastructure. China is unlikely to be removed from global supply chains altogether, but its central position may decline. Building new production networks requires factories, equipment, power, transport and raw materials, which makes the process naturally commodity-intensive.
BCA added that reindustrialization is not limited to the U.S. Europe still has room for more fiscal expansion, China enjoys lower financing costs, and pension funds and private capital in various countries can also be directed toward domestic investment. Economies outside the U.S., the report said, are fully capable of expanding investment and consumption.
On that basis, BCA recommends a long-term increase in exposure to commodities and other real assets through the rest of this decade, along with a reduction in excessive concentration in expensive U.S. financial assets. The firm summarized the 2020s as a decade of building atoms rather than only producing bytes. AI matters, but data centers, power grids, energy systems, factories and supply-chain reconstruction form the broader investment theme.
That said, the capex cycle will eventually produce excess capacity. BCA said that once ample new capacity has been built globally in the 2030s, inflation may begin to move lower again. At that stage, today’s higher bond yields could offer attractive entry points for long-term investors.
Overall, BCA’s portfolio framework can be summarized this way: keep holding risk assets in the short term while earning bond income; increase long-term exposure to non-U.S. markets, commodities and real assets; and stay alert to turning points that could be triggered by large tech IPOs, tighter global liquidity and a renewed escalation in the Russia-Ukraine war.