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Bank of America Institutional Research

Bank of America’s latest research highlights a complex intersection of strong corporate fundamentals and emerging macro risks. While 1Q26 US investment grade earnings reached multi-year highs of 8.1%, median net leverage climbed to 2.06x driven by accelerated capex and declining cash reserves. Market sentiment remains aggressively risk-on, with fund manager cash levels dropping to 3.9% and equity overweighting reaching 50%, even as 'second-wave inflation' emerges as a primary tail risk. This optimism is tempered by technical warnings of a 'door to doom' scenario as 30-year Treasury yields exceed 5% and semiconductor concentration reaches extreme levels. Additionally, fiscal factors such as the $13 billion in tariff refunds are providing a business buffer despite increasing deficit risks. Finally, quantitative analysis suggests that 'Positive Triple Momentum' serves as a critical alpha generator, particularly for mitigating the downsides of high-risk asset classes.

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