Bank of America analysts believe that U.S. equities are well-positioned to continue their upward trajectory, provided that economic growth remains stable.
In a recent note, the investment bank's analysts emphasized that "as long as growth is OK, equities can withstand a less-dovish Fed."
The focus for the market has shifted from inflation to growth, with the S&P 500 reacting more strongly to growth data than inflation figures in recent months, according to BofA.
Bank of America highlighted that stocks don’t need aggressive rate cuts from the Federal Reserve but rather a sign that growth will be supported.
“Equities just need a nod that growth is going to be supported by the Fed,” the analysts explained. The bank believes that even though the Fed is unlikely to become more dovish at the upcoming Jackson Hole symposium, growth will be a key factor in sustaining market momentum.
They laid out three primary reasons for continued rotation into equities: easing rate pressure, supported growth, and broadening earnings.
Despite the risk skewing to the upside, Bank of America expects that gains could be capped heading into Nvidia's earnings next week.
Looking ahead, the analysts expect the Fed to cut rates twice this year, once in September and again in December. “Growth is in the driver's seat,” Bank of America declared, suggesting that slow and steady economic performance could propel stocks higher through the remainder of 2024.