A new note from Bank of America Global Research says that U.S. stock markets are “changing lanes” as the economy moves away from rate-sensitive favorites like tech and consumer discretionary and toward less popular sectors such as banks, energy, and health care.
“Old economy has new growth/efficiency drivers,” wrote equity strategist Savita Subramanian. “CEOs are more bullish on earnings than since the COVID re-opening… AI is gravy.”
BofA’s most recent sector strategy update makes the case for structural change, not just short-term positioning. Charts in the note show what BofA calls a “macro turning point” that could affect institutional capital flows for the rest of the year.
And this time, the companies that lead the rally might be ones you haven’t thought about since 2019.
From rate pain to capex gain: what’s driving the rotation
BofA’s main point is that the markets no longer reward “growth at any cost.” Instead, they like companies that can make more money by being more efficient, investing in new technology, and following the right policies, not just AI hype.
BofA raised its rating on health care stocks to overweight after two years in the penalty box. The bank said this was because of a wave of margin improvements and new investor discipline.
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At the same time, it lowered utilities to underweight, which showed that the fund was at its peak and the future looked weak.
People are looking at banks and manufacturers again, even though they were thought to be economic relics. Factors including bringing jobs back to the U.S., easing regulations before the 2026 midterms, and a new wave of investment in AI infrastructure (e.g., datacenter capex) are all helping these sectors grow.
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“Growth kick-starters include the OBBBA [tax credits], the equipment wave for datacenters, and the resumption of paused activity after tariffs,” the note explains.
These drivers, BofA says, could fuel both better earnings per share and higher valuations in so-called “old economy” sectors.
Tech: too much spend, not enough sizzle
That hope hasn’t yet made its way into technology. In fact, BofA says that capital intensity could hurt performance, especially if AI bets don’t make money soon.
The numbers are clear: In 2025, hyperscalers will spend 65% of their operating cash flow on capital expenditures, up from just 20% in 2012. That’s a big change, and it could be a warning sign if sales don’t keep up.
People are using Amazon’s recent drop in stock prices after a not-so-great quarter as a warning. And in a world where regulators are nicer to banks than to Big Tech, the risk-reward calculation may be changing.
Why the reassessment of tech’s value matters now
This change couldn’t have come at a better time. Investors are facing a possible Fed pivot, shaky jobs data, and a lot of noise about policy changes during the election year.
BofA says that business investment, not consumer spending, will be the main driver of earnings in the fourth quarter and beyond. That could be why consumer discretionary also went from overweight to market weight.
To put it another way, you might already be behind the curve if you’re still chasing last year’s winners. And the same can be said, largely, for today’s winners.
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“I make no attempt to forecast the market — my efforts are devoted to finding undervalued securities.” The quote comes from Warren Buffett, the legendary chairman and CEO of Berkshire Hathaway, and it’s still just as relevant in 2025.
In the year thus far, Nvidia, Palantir, and Circle are standouts. However, the situation is fluid and subject to change.
The need for security, the growth of digital assets, loosening of domestic regulations, andAI, among other elements, are the reasons why certain stocks performed well this year.
This doesn’t mean, though, that moving forward, the mix of winners cannot change. A few years back, it was meme stocks. Then it was semiconductors, and now it is AI.
Savvy investors understand the need to be nimble and maintain a deep knowledge regarding the current state of the markets, and that’s exactly what drove the latest Bank of America note.
“If ignorant both of your enemy and yourself, you are certain to be in peril,” Sun Tzu famously said. And we ignore this ancient pearl of wisdom when analyzing the 2025 markets, at our own peril.
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