Global Research Unlocked

Several positives for US defense but FY26 a tough comp

Defense spending growth in the US and Europe is accelerating. The shift is particularly acute in Europe, where NATO allies had been spending between 1.5% to 2% of GDP on defense equipment but agreed in late June to spend 3.5% by 2035 (5% including other national security spend). Stocks of the European defense contractors have performed well this year as the market begins to anticipate this stronger spend and Ron Epstein addresses to what degree this spending will flow to US defense contractors, given Europe has an interest in boosting the domestic defense industry. Certain programs, like the F-35 fighter jet, could take a decade or more to replace should Europe be interested in their own program, while others could be replaced more quickly and this is a reason why US contractors could lose share of Europe spend with time. Ron also addresses the role that drones could play, implications for higher-end defense equipment, whether F27 is poised to be a down year for US defense spending and the new and existing equipment that could be demanded by the US' Golden Dome.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2025 Bank of America Corporation. All rights reserved.

The US Equity Strategy team recently raised its S&P 500 target but the target implies little to no upside between now and year-end as the team sees few positive catalysts over the next several quarters. Fiscal impulse from the One Big Beautiful Bill will be positive but lower than originally expected. The US Economics team expects the new fiscal plan to add between 0.3% and 0.4% to GDP growth in 2026 and to fade thereafter as benefits are front-loaded. US Economics does expect an important change next year as the Fed should start cutting rates and US Strategy discusses how this could boost certain areas of the market. But before discounting 2026 cuts, stocks may have to contend with a pricing out of 2025 cuts-US Economics doesn't expect rate reductions to start until the back half of next year. Jill and Aditya discuss tariffs, the resiliency of large corporates in particular and how tariff strategies could be impacted if higher costs begin to noticeably impact prices.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2025 Bank of America Corporation. All rights reserved.

Pipelines boom, esp. in the previously quiet Northeast

There's been a marked increase in the number of natural gas pipelines expected to be in service in the next several years. President Trump's policies explain some of this. But the commercial side is also enabling the boom. Jean Ann Salisbury addresses the various drivers and how these new pipelines could mean several hundred basis points of additional growth for some midstream companies. Interestingly, much of this development is taking place in the Northeast and increased access to gas could ultimately mean lower utility bills for commercial and residential customers. Jean Ann discusses how LNG will also be a key end market for this gas, the risk of an LNG glut further out and what this could all mean for the price of the commodity.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2025 Bank of America Corporation. All rights reserved.

Nuclear energy has received a lot of investor focus, especially following the President's recent executive orders and numerous agreements to supply nuclear power to data centers. But while adding capacity to existing plants isn't a major challenge, adding new US plants is more difficult. Jess Gehin from the Idaho National Lab and BofA Global Research's US Utility analyst Ross Fowler join to discuss what may lie ahead. Jess covers how the recent Executive Orders could accelerate the deployment of nuclear and how they've already stimulated activity. Jess also discusses HALEU, a more enriched variety of uranium used in some of the small modular nuclear reactors as well as Thorium, a reactor fuel that was studied in the 1960s and which has seen a resurgence of interest. While Thorium could eventually provide the US a domestically sourced nuclear fuel that enables longer term growth in nuclear generation, Jess believes uranium will be the fuel that continues to dominate for the foreseeable future.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2025 Bank of America Corporation. All rights reserved.

Potential for increased adoption of stablecoins and implications for the banking sector has become a hot topic among investors given the push among policymakers. Eventually, consumers might be able to buy dollar-linked stablecoins and potentially earn interest on these assets, meaning more competition for bank deposits. There are regulatory hurdles that first need to be cleared but Congress is currently considering a few proposals that could bring this closer to reality. While the use case beyond cross-border payments seem limited at the moment, the potential for non-banks (Big Tech / Big Retails) to come up with creative solutions to induce adoption poses risks. That said, potential for banks to issue a stablecoin once the regulatory framework is in place could mitigate risks, Ebrahim Poonawala discusses these issues as we delve into stablecoins, the areas where they could be particularly helpful to consumers and how, if adoption winds up being significant, they could impact everything from US Treasury demand to loan funding, to payment fees.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2025 Bank of America Corporation. All rights reserved.

As tariff fears have moved to the background, a different economic concern has moved to the foreground-growing fiscal deficits and the impact on interest rates. Public debt-to-GDP stood at 98% last year and is set to rise further. We discuss why deficits have captured the market's attention today and whether growth aspects of the budget plan could be offset by the higher interest rates. While the boost to growth isn't large, certain groups should see benefits. This includes senior citizens, also business investment may benefit later in the year, especially if tariff uncertainty has peaked. The US Rate Strategy team believes that a mismatch of demand and supply of Treasuries at the long end of the curve could lead to more cheapening of Treasuries, meaning that the 30Y yield could move further above swap rates. In theory, the recent Moody's downgrade of the US' credit rating could lead Congress to a more balanced budget and but on that, our guests were skeptical.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2025 Bank of America Corporation. All rights reserved.

Smart glasses could be the next big opportunity in personal technology. Leading tech companies are focused on the form factor and functionality like augmented reality and 4K video may follow today's applications, which include AI assistants, music playback, phone calls and hands-free texting. Ultimately, these devices could stretch out the smart phone replacement cycle, like phones have managed to stretch the replacement cycle for laptops. In the 2030s, we could even see a world where smart glasses are the default personal device. But while there could be big changes ahead, that doesn't mean that hardware and software incumbents are about to be disrupted. Wamsi Mohan discusses why he believes incumbents have a major advantage in smart glasses and much of it comes down to control of the ecosystem. There's risk for incumbent Internet companies too but many of them have proven adept at adjusting business models in the past and the new form factor could even enhance business models as Internet use rises further.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2025 Bank of America Corporation. All rights reserved.

Even as equities have rallied substantially from April lows, recovery in the dollar index, or DXY, has underwhelmed and the currency sits near the lowest level it's been in three years. Alex Cohen believes that while there are cyclical reasons for the dollar weakness, there's also been a bigger structural rethink on the currency by investors from the push toward de-globalization and from questions around US exceptionalism. Alex sees German fiscal reforms as a game changer, another dollar negative. But our own survey shows very negative sentiment for the dollar, which is relevant to the short term. Mark Cabana contributes with a discussion of rates given the important interplay between the Treasuries and currencies. Mark believes that there has been a shift away from US Treasuries by global investors, although a lot of this recent shift is a function of investors reducing their overweight position rather than getting outright negative. Mark also discusses debt sustainability concerns and how budget negotiations may impact bonds going forward.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2025 Bank of America Corporation. All rights reserved.

Multinational companies have used transfer pricing as a way to reduce tax bills. Transferring a product from a lower tax jurisdiction allows profits to be taxed at the lower corporate rate, so a higher price can mean greater tax savings. But tariffs would be based on the higher price, meaning that some of the same companies using this practice to lower tax bills will also face higher levies. Travis Steed discusses what this means for medtech, the impact transfer pricing has had on tax rates, whether practices could change under a tariff regime and why the group is still a compelling, defensive investment

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2025 Bank of America Corporation. All rights reserved.

There's been a shift in snacking towards healthier options and away from some of the convenience store classics. A stretched consumer seeking value for their dollar seems to be allocating spend to cleaner alternatives. These often contain more protein and less of what's perceived as harmful. Rising GLP-1 (glucagon-like peptide-1) usage may be a minor contributor to these shifts too, though it's likely that more of this impact is ahead of us as penetration of these drugs rises and oral options arrive. Outside of food, alcohol consumption has fallen, creating structural headwinds industries like beer. Pete Galbo discusses trends and what these shifts mean for his coverage. Mike Dick, Consumer Sector Specialist, who is not a member of the research department, joins in to ask a few questions.

You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life.

"Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities.

©2025 Bank of America Corporation. All rights reserved.