CMO BofA 09-25-2023 Ada

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CHIEF INVESTMENT OFFICE

Capital Market Outlook

September 25, 2023

All data, projections and opinions are as of the date of this report and subject to change.

IN THIS ISSUE MACRO STRATEGY 


Macro Strategy—Rates, Dollar, and Oil Raise Downside Risks: With the U.S. economy Irene L. Peters, CFA®
performing much better than expected in the face of sharp Federal Reserve (Fed) rate hikes Director and Senior Macro Strategy Analyst
this year, credit markets being calm, and the S&P 500 Index advancing, the historical link
between an inverted yield curve and recessions has been called into question. While it MARKET VIEW 
remains to be seen whether the yield curve signal ultimately proves false, its past link to Joseph P. Quinlan
bank lending standards, credit availability, economic growth, and changes in the Managing Director and Head of CIO Market Strategy
unemployment rate continues to give us pause. Ariana Chiu
Market View—U.S.-China Decoupling: A More Nuanced View: This week we present a Wealth Management Analyst
more nuanced view of the U.S.-Sino decoupling thesis. While much has been made of the
fact that U.S. imports from China have declined to multi-year lows, most of the decline in THOUGHT OF THE WEEK 
imports has been in basic and mundane goods—apparel, footwear, computers and Matthew Diczok
furniture. On the other hand, the U.S. remains highly import dependent on China for many Managing Director and Head of Fixed Income
critical materials necessary to help drive America’s green transition. An all-out, full-blown Strategy
decoupling of the U.S. and China is not our base case—it would be too ruinous for both
parties. Reality, or the world we live in, is far more complex than the headlines suggest. MARKETS IN REVIEW 
Thought of the Week—Time In The Bond Market, Not Timing The Bond Market:
Data as of 9/25/2023,
Holding enough cash to cover any anticipated or unanticipated spending needs is key.
and subject to change
Investors looking to compound real wealth over time, however, should continue to rely on
market assets and not overweight cash no matter how tempting higher short-terms yields
may be. Portfolio Considerations
The Clock Is Ticking With barely a handful of legislative days remaining, Congress must
We expect a slight updraft in
agree on spending, or we face yet another shutdown on October 1. The more likely
September, primarily due to
outcomes: (1) Congress passes a Continuing Resolution (CR) temporarily funding the
government at current levels (a long-term CR could trigger automatic spending cuts next investment flows coming back into
year because of the debt ceiling agreement). Potential Outlook: Possibly, given time the market as inflation gauges
constraints, but complicating the process is the likelihood that House leadership would continue to move lower and bond
consider including funds for disaster relief, but would leave out aid to Ukraine. If additional yields back off a bit. In addition, we
aid is to be approved for Ukraine, expect changes to border policies as well as an increase expect corporate earnings for Q3 to
to border security. (2) Government shutdown. Non-essential parts of the Federal come in with a small beat again.
government shutdown on October 1, until political pressure builds to fund the government Longer-term investors should
on a bipartisan basis. Potential Outlook: A likely and growing probability. consider using excess cash on a
Should we be concerned? While it may not be too much to ask Congress to complete its dollar-cost averaging approach into
routine tasks in a timely manner, we nonetheless see limited economic impact. A Equities over the last quarter of the
government shut down is mainly noise, often short lived, but could be more complicated year. Given both tailwinds and
going into an environment of an expected slowing economy. Markets have generally headwinds, we continue to maintain a
shrugged-off the effect of a shutdown, perhaps after an initial dip. Impact to gross balanced tactical portfolio strategy
domestic product (GDP) often range from 0.1% to 0.2% per week, but generally reversed view and a high-quality bias in the
as the government opens and employees receive back-pay. near term.
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Trust and fiduciary services are provided by Bank of America, N.A., Member FDIC and a wholly owned subsidiary of
Bank of America Corporation (“BofA Corp.”).
Investment products:
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Please see last page for important disclosure information. 5966108 9/2023
MACRO STRATEGY
Rates, Dollar, and Oil Raise Downside Risks
Irene L. Peters, CFA®, Director and Senior Macro Strategy Analyst
Seemingly insensitive to the Fed’s aggressive interest rate hiking cycle, incoming data, on
balance, have remained “not too hot, not too cold,” raising hopes of a successful “soft
landing” of the U.S. economy. The latter entails moving from unsustainably high growth and Portfolio Implications
inflation to a moderate growth and inflation environment without major economic and/or New risks to the outlook from
financial sector turbulence. There is an emerging Wall Street consensus that the U.S. will surging oil prices, appreciating
avoid recession, although that said, the S&P 500 Index rally has stalled as of late. Behind the dollar and “higher for longer
drag: 1) seasonality, i.e., September is historically a tough month for Equities, and 2) the interest rates” suggest that a
emergence of some new bumps in the road, namely, the rise in bond yields, the dollar and oil balanced tactical portfolio strategy
prices. with a high-quality bias remains
In this context, expectations for “higher for longer” interest rates to bring inflation prudent.
sustainably down to the Fed’s 2% target—confirmed by the Fed’s recent upside revisions to
its interest rate projections through 2024—have further weighed on the narrow market
index rally off the October 2022 lows. The sharp rise in 10-year Treasury yields to new cycle
highs will continue to spread throughout the economy, increasing mortgage rates further, for
example. Rising mortgage rates have already caused a renewed downturn in housing-related
sentiment, as reflected in the large August drop in the National Association of Homebuilders’
survey back below breakeven after an encouraging first-half recovery.

Also, higher energy costs have reignited consumer price inflation in August. Rising gasoline
prices reduce consumer discretionary incomes and, thus, could weigh on the outlook for real
consumer spending growth. That said, a key offset to rising energy prices lies with a tight
labor market and rising worker incomes.

Beyond the consumer, rising transportation costs could also create upside risks to goods and
services inflation, weighing on near-term growth prospects. At the same time, dollar
appreciation dampens the dollar value of corporate profits from overseas and restrains
exports, but also serves as a dampener to inflation. A strong dollar is the Fed’s friend, in
other words. The key to all the above: There are multiple crosscurrents working through the
economy, which, as we have highlighted in the past, is a $26 trillion hydra-headed beast that
remains the most competitive and dynamic in the world. Yes, it is too early to declare “all
clear” to the risks of recession; but by the same token, bumps in the road are not uncommon,
and hence our balanced approach when it comes to portfolio construction.

Keeping a sharp eye on the yield curveThe debate about the ultimate effect of all these
speed bumps to growth remains intense, with the recession predictive power of the yield
curve inversion particularly doubted. As discussed in past Chief Investment Office (CIO)
Capital Market Outlook reports, researchers have long determined that the spread between
long- and short-term interest rates contains useful information about the economic outlook,
with negative term spreads (higher short-term rates than long-term interest rates) for
decades providing accurate early warnings about incoming recessions and steep curves
precursors of strong early-cycle rebounds in economic activity.

That makes sense, since the yield curve tends to not only reflect investors’ views about the
future state of the economy (as embedded in their aggregate long-term interest rates
expectations), but these views also feed back to affect economic activity. For example, the
link between the yield curve spread and subsequent economic activity is apparent in the
correlation between the yield curve spread and bank lending appetite five quarters later.
Despite a temporary desynchronization caused by the pandemic shock, their co-movement
appears restored, suggesting that bank lending is likely to remain strained into 2024,
typically an economic headwind.

The transmission channel from the monetary policy stance, as reflected in the yield curve
spread, to economic growth has most recently been documented in a July 2023, Federal

2 of 8 September 25, 2023 – Capital Market Outlook RETURN TO FIRST PAGE


Reserve Board research report 1 which provides “evidence on the effect of the slope of the
yield curve on economic activity through bank lending.” Using detailed data on banks’ lending
activities, the authors show that a steeper yield curve associated with higher term premiums
boosts bank profits and the supply of bank loans. “Intuitively, a higher term premium
represents greater expected profits on maturity transformation, which is at the core of
banks’ business model, and therefore incentivizes bank lending. This effect is stronger for ex-
ante more leveraged banks.” In our view, this link, combined with the fact that it takes about
a year for a drop in bank lending appetite to result in rising unemployment, indicates
significant risk of a potentially meaningful increase in unemployment over the next year
(Exhibit 1and 2). That said, any rise in joblessness is coming off a low base and is unfolding
in an economy still short of labor across multiple sectors like Construction, Semiconductors,
truck drivers, Manufacturing, and other sectors. The backup in unemployment, in other words,
could top out at levels below levels of the past.

Exhibit 1: Bank Willingness To Lend Followed By Changes Exhibit 2: The Yield Curve Spread’s Correlation With Bank
In The Unemployment Rate One Year Later. Lending Appetite Helps Explain Its Recession Prediction Record.
6 Standard Deviation from Mean Standard Deviation from Mean -6 5 Standard Deviation from Mean Standard Deviation from Mean -5
5 Y-to-Y Change in the Unemployment rate -5
(L. Scale) 4 % of Banks tightening commercial and -4
4 -4
3 Industrial loans to small firms (L. Scale) -3
3 -3
2 -2 2 -2
1 -1
1 -1
0 0
-1 1 0 0
-2 2 -1 1
-3 Bank willingness to lend to consumers 3
-4 4 -2 Yield curve spread (10-Year Treasury minus Fed funds 2
(Advanced 3 quarters, R. Scale, Inverted)
-5 5 rate, advanced 5 quarters, R. Scale, Inverted)
-3 3
1967 - Q1

1971 - Q1

1975 - Q1

1979 - Q1

1983 - Q1

1987 - Q1

1991 - Q1

1995 - Q1

1999 - Q1

2003 - Q1

2007 - Q1

2011 - Q1

2015 - Q1

2019 - Q1

2023 - Q1

1990 - Q1

1993 - Q1

1996 - Q1

1999 - Q1

2002 - Q1

2005 - Q1

2008 - Q1

2011 - Q1

2014 - Q1

2017 - Q1

2020 - Q1

2023 - Q1
Gray bars represent recession periods for both charts. Standard deviation is a statistical measurement of how far a variable, such as an investment’s return, moves above or below its average
(mean) return. Exhibit 1: Sources: Federal Reserve Board; The Conference Board/Haver Analytics. Data as of September 21, 2023. Exhibit 2: Sources: Federal Reserve Board; Bureau of Labor
Statistics/Haver Analytics. Data as of September 1, 2023.

In sum, U.S. economic growth has surprised to the upside, and the unemployment rate has
increased only modestly to just 3.8%, mainly because of a surge in the labor force
participation rate (that is, for a good reason). However, government spending is expected
to swing from significantly contributing to growth in 2023 to a more neutral factor on
growth in 2024 and beyond. The outlook for consumer spending hangs in the balance:
excess savings have been depleted, and the personal saving rate has dropped to rock-
bottom levels. Bank willingness to lend to consumers is very low, typically a headwind to
growth. The offset, however, remains a historically tight labor market.

Heading into the final quarter of the year, we continue to expect a “grind it out’ market,
punctuated by periodic bouts of volatility and risk-off moves. Current bumps in the road—
notably the optics around the United Auto Workers strike, a potential government
shutdown, and rise in oil prices—will weigh on investor sentiment near-term. However, we
maintain a balanced, high-quality approach to portfolio construction given the structural
competitive strengths of the U.S. economy.

1
Camelia Minoiu, Andres Schneider, Min Wei, "Why Does the Yield Curve Predict GDP Growth? The Role of Banks,"
Board of Governors of the Federal Reserve System, July 2023.

3 of 8 September 25, 2023 – Capital Market Outlook RETURN TO FIRST PAGE


MARKET VIEW
U.S.-China Decoupling: A More Nuanced View
Joseph P. Quinlan, Managing Director and Head of CIO Market Strategy
Ariana Chiu, Wealth Management Analyst
Much has been made in the media about America’s declining import share from China,
with the percentage of total U.S. goods imports from China now at their lowest level since Investment Implications
2005. China’s share of U.S. imports was just 13.5% in the first seven months of this year,
down from 16.5% in 2022 and a peak of 21.6% in 2017, according to the U.S. Census The CIO continues to monitor and
Bureau. Totaling $239 billion over the January-July 2023 period, U.S. imports from China assess the risks (and rewards) of
were off nearly 25% from the same period a year ago. deteriorating U.S.-China relations.
The stakes are high; virtually every
These numbers support the U.S-China decoupling narrative—and the prevailing consensus asset class—from Cash to
that the world’s two largest economies are going their separate ways, as Beijing seeks Commodities—is affected by how
greater economic self-sufficiency, and Washington works overtime to cajole U.S. firms to well or by how badly U.S. and
diversify their global supply chains beyond China. The proof, then, of decoupling is in the China engage with each other and
trade numbers. Or is it? with the rest of the world.
The much-cited import figures deserve a more nuanced view, in our opinion. Why?
Because as Exhibits 3 and 4 illustrate, while America’s import dependence on China for a
range of basic and mundane products like apparel, footwear and toys has dropped
precipitously over the past few years, U.S. dependence on China for critical material
imports required to help power America’s green transition not only remains high but, in
many cases, has only increased this decade.

So memo to the decouplers—curb your enthusiasm. Don’t hang your hat on the headline
trade figures that are misleadingly screaming that the U.S. and China are inexorably on a
path of disengagement. And don’t bite on the false narrative that as America reduces its
import dependence on China, the upshot is more U.S. leverage over Beijing in setting bi-
lateral trade and investment policies. Nothing could be further from the truth.

And attention investors: The good news is that despite all the chatter about decoupling,
U.S.-Sino trade and investment ties remain relatively thick across various strategic
industries. That is bullish for U.S. assets, in our opinion. That said, however, the risks of a
market-rattling divorce between the world’s two largest economies remain real. The
footprints of decoupling are plain to see—if they multiply, the risks to Corporate America
also multiply.

Decoupling: The first cuts were not the deepest Owing to the punishing tariffs of the Trump Exhibit 3: Decoupling from China The
administration, and even tighter restrictions on trade and investment under the Biden Factory: Goods Imports From China
administration, U.S.-China bilateral commerce has downshifted over the past few years, As A Percent of Total.
and has continued to decline in 2023. Both trade and foreign direct investment flows are
2016 2023 through July
moving to the downside.
Total Goods
As Exhibit 3 underscores, quintessential “Made in China” imports like toys, furniture,
footwear and apparel have all plummeted since 2016, with the downturn reflecting rising
Electric Machinery
wage costs in China and the start of the U.S.-China trade war in 2018. The latter spurred a
number of rounds of tit-for-tat of tariffs on a variety of goods. Rising trade tensions also
Toys and Games
triggered a massive rethink of global supply chain vulnerabilities among suppliers, with the
pandemic and ensuing supply chain bottlenecks in China giving the diversification narrative Furniture
even more credence.
Footwear
As part of the decoupling theme, U.S. importers, at the urging of Washington, have
diversified away from China in recent years, boosting production in Vietnam, India, Mexico,
Apparel
Korea and Taiwan. Hence the massive shift in trade. Based on figures from the U.S.
Census Bureau, U.S. electrical machinery imports from China—as a percent of total 0% 25% 50% 75% 100%
imports—dropped by nearly 15 percentage points between 2016 and 2023; the Source: U.S. Census Bureau. Data as of September 2023.
percentage decline in toys wasn’t as great (10 percentage points), but the declines in

4 of 8 September 25, 2023 – Capital Market Outlook RETURN TO FIRST PAGE


furniture (20 percentage points), footwear (20 percentage points) and apparel (13
percentage points) were quite dramatic. These products are among the largest categories
of U.S. imports from China, and hence their declines have had an outsized effect on
aggregate import demand and an outsized influence on fueling the decoupling debate.

But here’s the rub: Thus far, U.S.-China decoupling has been relatively painless for the U.S.
economy and nonthreatening to the capital markets because finding alternative suppliers
for dolls, hoodies, sandals and mother boards hasn’t been that difficult or disruptive. These
products can be produced virtually anywhere in the world. As goods import from China
have gone down, imports from Vietnam, Taiwan and other nations have gone up.

America: Decoupling from China the factory, not China the refinery Yes, China’s role as the
“factory to the world” is being recast as more firms diversify and derisk their global supply
chains. And yes, as the media seems to harp on daily, the percentage of imports to the
U.S. from China is declining. But China does more than make “stuff”; it also refines “stuff”.

Indeed, when it comes to refining iron ore into steel or pulverizing cobalt into fine purity
particles for batteries, most roads lead through China. The nation’s processing
infrastructure—think smelters, refiners, cracking activities, chemicals and related
capabilities—is second to none on a global scale, and a potentially dangerous set up for a
country like the U.S., which according to the U.S. Geological Survey, is 100% reliant on
graphite and manganese imports, 70% per cobalt, and 50% net import reliant on lithium
and nickel. The U.S. is also significantly dependent on imports of metals/minerals like
antimony, rare earth minerals, barite, bismuth, gallium, germanium, tantalum, yttrium and
many other minerals. The list goes on—indeed, according to the U.S. Geological Survey’s
“Mineral Commodities Summaries 2023” report, the U.S. is now more than 50% reliant on
51 foreign minerals, up from 47 from the prior report. Importantly, 43 of these 51
minterals are categorized as “critical” by both the U.S. Geological Survey and the
Department of Energy.

From this list, China ranks as the number one supplier of 12 critical materials: antimony,
Exhibit 4: No Decoupling from China
arsenic, barite, bismuth, gallium, germanium, graphite, magnesium, rare earths, tantalum,
The Refinery: Critical Materials
tungsten and yttrium. Seven of these commodities are depicted in Exhibit 4, which shows
Imports From China As A Percent of
that from 2016 to 2022, America’s import reliance on China for these critical commodities
actually went up, not down. Take graphite, for example. Essential for batteries used for Total.
electric vehicles, graphite imports from China as a percent of total more than doubled 2016 2022
between 2016 and 2022, according to the U.S. International Trade Commission. In other Germanium
words, when it comes to critical materials to power America’s green transition, and to
support the U.S. semiconductor and defense sectors, think more, not less dependence on Graphite
China.
Magnesium*
Decoupling? Sure, that’s possible for garments but not graphite; monitors not magnesium;
Rare Earths
athletic shoes not arsenic; rattan furniture not rare earth minerals; Toys not tantalum. The
inconvenient truth is that the U.S. remains wedded—coupled—to the refining champion of Tantalum
the world. And while the U.S. and its allies are serious about diversifying its mineral/metals
supply chain, efforts to diversify and derisk mineral supply chains won’t be cheap and Tungsten
won’t happen overnight. These transitions will take time and require a great deal of capital
Yttrium
and the political will to overcome environmental concerns.
0% 20% 40% 60% 80% 100%
Investment takeaway For investors, all of the above is a reminder that geopolitical risks—
namely souring U.S.-China relations—remain a key concern and consideration when it *Magnesium compounds. Sources: U.S. International Trade
Commission DataWeb, U.S. Geological Survey Mineral
comes to portfolio construction and expected market returns. There is a great deal at Commodity Summaries 2023. Data as of January 31, 2023.
stake as the decoupling debate swirls and gathers more traction as the 2024 election
approaches. An all-out, full-blown decoupling of the U.S. and China is not our base case—it
would be too ruinous for both parties. That said, we suggest investors take a more
nuanced view of the decoupling headlines. Reality, or the world we live in, is far more
complex than the headlines suggest.

5 of 8 September 25, 2023 – Capital Market Outlook RETURN TO FIRST PAGE


THOUGHT OF THE WEEK
Time In The Bond Market, Not Timing The Bond Market
Matthew Diczok, Managing Director and Head of Fixed Income Strategy
Cash is a critical asset, allowing investors to cover both anticipated and unanticipated
spending. Cash’s principal value does not fluctuate, so it is considered a “risk-free” asset.
Investment Implications
In reality, no asset is risk-free. Investors can never fully eliminate risk; they can only
Investors should choose a
diversify and take different types. If investing to grow real (inflation-adjusted) wealth long
term is the goal, cash is quite risky. That’s because cash—using Treasury Bill (T-Bill) yields strategic duration target for their
as a proxy—has historically only kept pace with inflation. Similar to running on a treadmill, Fixed Income portfolios that
cash leaves investors exactly where they start—with no growth in purchasing power. considers their goals, risk tolerance
and time horizon. Relative to that
When the curve is inverted, as it is now—10-year Treasurys are around 100 basis points
target, we suggest investors have
below 3-month T-Bill yields—investors may be tempted to replace long-term Fixed
a slightly longer duration position
Income with cash. The thinking may be: With no interest rate risk and higher yields, cash
offers the best of both worlds. This may be especially alluring after recent years of currently. Cash would not be
meager-to-negative bond returns. considered a substitute for Fixed
Income, as it increases macro risk
This is a siren’s song that long-term investors should ignore, in our opinion. Cash is not and reinvestment risk in a
Fixed Income; it is variable income and not an appropriate substitute for longer-term portfolio.
bonds. Cash yields fluctuate with the business cycle. Investors do not eliminate interest
rate risk by moving to cash; they replace rate risk with reinvestment risk. The risk that as
the economy slows, the Fed lowers rates, and cash yields become less attractive. Cash
yields are consequently positively correlated with the economy: higher when the economy
is strong, lower when it weakens. This is the opposite of high-quality Fixed Income, which
is negatively correlated with the business cycle (lower yields in a recession increase bond
prices). Replacing Fixed Income with cash thus increases positive macroeconomic risk
already a major risk factor for Equities in a diversified portfolio. Therefore, increasing cash
at the expense of Fixed Income increases overall risk in a diversified, multi-asset class
portfolio by making it more correlated to the macroeconomy.
As cash offers stable principal value, the trade-off is also worse for long-term returns,
both nominal and real. Since 1991, $100 invested in cash would only be worth $99 in
current purchasing power (Exhibit 5). A diversified Fixed Income portfolio would have
almost doubled real wealth over the same time period.
Cash is key for any spending needs. Investors looking to compound real wealth over time,
however, should continue to rely on market assets, and not on cash, no matter how
tempting higher short-term yields may be.
Exhibit 5: Cash Has Significantly Underperformed Fixed Income Over Longer
Investing Horizons.

Inflation-adjusted Returns Cash Treasury Agg Corps


350
325 $100 in Cash = $99 today
300 $100 in Treasurys = $169 today
275 $100 in Aggregate = $186 today
250 $100 in Corporates = $238 today
225
200
175
150
125
100
75
Dec-91
Dec-92
Dec-93
Dec-94
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22

Sources: Bloomberg Indexes; Bureau of Labor Statistics; CIO Calculations. Data as of August 2023. Past performance is no
guarantee of future results. Please refer to index definitions at the end of this report. It is not possible to invest directly in
an index.

6 of 8 September 25, 2023 – Capital Market Outlook RETURN TO FIRST PAGE


MARKETS IN REVIEW

Equities
Total Return in USD (%) Economic Forecasts (as of 9/22/2023)
Current WTD MTD YTD 2022A Q1 2023A Q2 2023A Q3 2023E Q4 2023E 2023E
DJIA 33,963.84 -1.9 -2.1 4.1 Real global GDP (% y/y annualized) 3.6 - - - - 3.0
NASDAQ 13,211.81 -3.6 -5.8 27.0 Real U.S. GDP (% q/q annualized) 2.1 2.0 2.1 2.0 1.5 2.1
S&P 500 4,320.06 -2.9 -4.1 13.9 CPI inflation (% y/y) 8.0 5.8 4.0 3.5 3.5 4.2
S&P 400 Mid Cap 2,495.51 -2.8 -5.6 3.9 Core CPI inflation (% y/y) 6.1 5.6 5.2 4.4 3.9 4.8
Russell 2000 1,776.50 -3.8 -6.4 2.0 Unemployment rate (%) 3.6 3.5 3.5 3.7 3.8 3.6
MSCI World 2,879.85 -2.7 -3.5 12.1 Fed funds rate, end period (%) 4.33 4.83 5.08 5.38 5.63 5.63
MSCI EAFE 2,064.71 -2.0 -2.0 8.6
MSCI Emerging Markets 964.24 -2.1 -1.5 3.0 The forecasts in the table above are the base line view from BofA Global Research. The Global Wealth & Investment
Management (GWIM) Investment Strategy Committee (ISC) may make adjustments to this view over the course of the
Fixed Income† year and can express upside/downside to these forecasts. Historical data is sourced from Bloomberg, FactSet, and
Haver Analytics. There can be no assurance that the forecasts will be achieved. Economic or financial forecasts are
Total Return in USD (%)
inherently limited and should not be relied on as indicators of future investment performance.
Current WTD MTD YTD A = Actual. E/* = Estimate.
Corporate & Government 5.20 -0.44 -1.54 -0.04 Sources: BofA Global Research; GWIM ISC as of September 22, 2023.
Agencies 5.17 -0.15 -0.52 1.50
Municipals 4.06 -1.07 -1.42 0.15
U.S. Investment Grade Credit 5.26 -0.50 -1.59 -0.24 Asset Class Weightings (as of 9/5/2023) CIO Equity Sector Views
International 5.88 -0.34 -1.51 1.21 CIO View CIO View
High Yield 8.73 -0.65 -0.76 6.31 Asset Class Underweight Neutral Overweight Sector Underweight Neutral Overweight
90 Day Yield 5.47 5.45 5.44 4.34
neutral yellow

Equities
Over weight green

    Healthcare    
2 Year Yield 5.11 5.03 4.86 4.43
Slight over weight green

U.S. Large Cap


Slight over weight green

    Energy    
10 Year Yield 4.43 4.33 4.11 3.87 U.S. Mid Cap
Slight over weight green

   
Slight over weight green

30 Year Yield 4.52 4.42 4.21 3.96 neutral yellow


Utilities    
U.S. Small-cap    
Slight underweig ht orange
Consumer Neutral yellow

   
International Developed     Staples
Commodities & Currencies Emerging Markets
Neutral yellow

    Information Neutral yellow

   
Total Return in USD (%) Neutral yellow

Technology
Fixed Income    
Commodities Current WTD MTD YTD
U.S. Investment- slight over weight green
Communication Neutral yellow

   
Bloomberg Commodity 240.31 -1.1 0.5 -2.3    
grade Taxable Services
WTI Crude $/Barrel†† 90.03 -0.8 7.7 12.2 International
neutral yellow

    Industrials
Neutral yellow

   
Gold Spot $/Ounce†† 1925.23 0.1 -0.8 5.5 Slight underweig ht orange

Global High Yield Taxable


Neutral yellow

    Financials    
Total Return in USD (%) U.S. Investment Grade Slight underweig ht orange

    Materials
slight underweig ht orange

   
Prior Prior 2022 Tax Exempt slight underweig ht orange

U.S. High Yield Tax Exempt


Slight underweig ht orange

Real Estate    
Currencies Current Week End Month End Year End    

EUR/USD 1.07 1.07 1.08 1.07 Alternative Investments* Consumer Underweight red

   
Discretionary
USD/JPY 148.37 147.85 145.54 131.12 Hedge Funds
USD/CNH 7.30 7.28 7.28 6.92 Private Equity
Real Estate
S&P Sector Returns Tangible Assets /
Commodities
Healthcare -1.2% Cash
Utilities -1.7%
*Many products that pursue Alternative Investment strategies, specifically Private Equity and Hedge Funds, are available
Consumer Staples -1.8% only to qualified investors. CIO asset class views are relative to the CIO Strategic Asset Allocation (SAA) of a multi-asset
Energy -2.3% portfolio. Source: Chief Investment Office as of September 5, 2023. All sector and asset allocation recommendations
Information Technology -2.6% must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all
Industrials -2.7% recommendations will be in the best interest of all investors.
Financials -2.8%
Communication Services -3.2%
Materials -3.6%
Real Estate -5.3%
Consumer Discretionary -6.3%
-7% -6% -5% -4% -3% -2% -1% 0%

Sources: Bloomberg; Factset. Total Returns from the period of


9/18/2023 to 9/22/2023. †Bloomberg Barclays Indices. ††Spot price
returns. All data as of the 9/22/2023 close. Data would differ if a
different time period was displayed. Short-term performance shown
to illustrate more recent trend. Past performance is no guarantee
of future results.

7 of 8 September 25, 2023 – Capital Market Outlook RETURN TO FIRST PAGE


Index Definitions
Securities indexes assume reinvestment of all distributions and interest payments. Indexes are unmanaged and do not take into account fees or expenses. It is not possible to invest
directly in an index. Indexes are all based in U.S. dollars.
S&P 500 Index is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.
Cash/Bloomberg US Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury.
Bloomberg US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.
Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market.

Important Disclosures
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Bank of America, Merrill, their affiliates and advisors do not provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of
America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (“CIO”) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions
oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
The Global Wealth & Investment Management Investment Strategy Committee (“GWIM ISC”) is responsible for developing and coordinating recommendations for short-term and long-term
investment strategy and market views encompassing markets, economic indicators, asset classes and other market-related projections affecting GWIM.
BofA Global Research is research produced by BofA Securities, Inc. (“BofAS”) and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC and wholly owned subsidiary of
Bank of America Corporation.
All recommendations must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be in the best interest of all
investors.
Asset allocation, diversification, rebalancing and dollar cost averaging do not ensure a profit or protect against loss in declining markets.
Keep in mind that dollar cost averaging cannot guarantee a profit or prevent a loss. Since such an investment plan involves continual investment in securities regardless of fluctuating price levels,
you should consider your willingness to continue purchasing during periods of high or low price levels.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the
companies or markets, as well as economic, political or social events in the U.S. or abroad. Stocks of small-cap and mid-cap companies pose special risks, including possible illiquidity and greater
price volatility than stocks of larger, more established companies. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible
prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Bonds
are subject to interest rate, inflation and credit risks. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the
U.S. government. Investments in high-yield bonds (sometimes referred to as “junk bonds”) offer the potential for high current income and attractive total return but involves certain risks. Changes
in economic conditions or other circumstances may adversely affect a junk bond issuer’s ability to make principal and interest payments. Investments in foreign securities (including ADRs) involve
special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in
emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. There are special risks associated with an investment
in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.
Alternative investments are speculative and involve a high degree of risk.
Alternative investments are intended for qualified investors only. Alternative Investments such as derivatives, hedge funds, private equity funds, and funds of funds can result in higher return
potential but also higher loss potential. Changes in economic conditions or other circumstances may adversely affect your investments. Before you invest in alternative investments, you should
consider your overall financial situation, how much money you have to invest, your need for liquidity, and your tolerance for risk.
Nonfinancial assets, such as closely held businesses, real estate, fine art, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks including total loss
of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations, and lack of liquidity. Nonfinancial assets are not in the best interest of all
investors. Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax,
or estate planning strategy.
© 2023 Bank of America Corporation. All rights reserved.

8 of 8 September 25, 2023 – Capital Market Outlook RETURN TO FIRST PAGE

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