A growing chorus of Wall Street economists is turning more optimistic on the U.S. economy, and one of the clearest bullish signals is coming from Bank of America.
In its latest outlook, the bank indicated that U.S. growth in 2026 could significantly exceed consensus expectations and arrive sooner than many investors anticipate.
Growth Is Above Consensus — And Front-Loaded
“Our 2026 average U.S. GDP growth forecast of 2.8% is well above consensus,” Bank of America economist Aditya Bhave wrote in a recent report, compared with roughly 2.1% expected by the broader market.
Notably, Bhave expects growth to be front-loaded, with stronger momentum in the first half of the year.
A key driver is the One Big Beautiful Bill Act (OBBBA), which BofA estimates could deliver $135–$140 billion in consumer stimulus during tax season alone. That translates into more than $1,000 per household on average, largely arriving between February and April, when tax refunds typically peak.
“We now project that consumer stimulus from the OBBBA will be much more front-loaded into tax season,” Bhave said, prompting Bank of America to raise its first-half growth outlook while trimming expectations for the back half of the year.
Labor Market And Consumers Still Holding Up
Recent data reinforce the upbeat tone. The unemployment rate fell to 4.4% in December, suggesting labor supply constraints may be tightening faster than the Fed expects.
Meanwhile, November retail sales met expectations, with the control group rising 0.4%, signaling resilient consumer spending despite higher interest rates.
Bhave notes that while job growth has slowed, the labor market dynamic is increasingly a supply-side story — one that allows the Fed to remain patient without choking off expansion.
On inflation, Bank of America expects core PCE to end 2026 at 3.0% year over year, slightly higher than earlier estimates. Recent CPI and PPI data surprised to the downside, but Bhave cautions that core PCE may run hotter than core CPI in the months ahead.
Still, with the real policy rate likely already in accommodative territory, the broader policy mix remains growth-supportive.
Upside Risks Are Real
Beyond fiscal stimulus and monetary easing, Bank of America points to additional tailwinds: continued AI-related investment, improving productivity trends, and a more predictable trade policy environment regardless of Supreme Court rulings on tariffs.
“AI-related investment should continue to grow at a solid pace next year, despite already-elevated levels,” Bhave said.
“Risks to our projections are tilted to the upside,” he wrote, adding that “a 3-handle on 2026 growth wouldn’t be a big surprise.”
Economic Strength Favors Smaller Companies
If the growth outlook continues to firm and economic momentum remains front-loaded, small caps may be well positioned to extend their early-year leadership.
The Russell 2000, tracked by the iShares Russell 2000 ETF (NYSE:IWM), has already surged to fresh record highs, rising more than 7% year-to-date and decisively outperforming the S&P 500, which has been nearly flat.
Analysts note that stronger U.S. growth tends to translate into faster and more pronounced earnings revisions for small-cap companies, given their greater domestic exposure and operating leverage.
If that dynamic persists — and macro data continues to surprise to the upside — small and mid-sized stocks could remain a key beneficiary of the improving economic narrative in the months ahead.
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