BofA maps investing playbook for war, oil shocks and credit risks

Investing.com -- Bank of America told investors in a note Friday to prepare for prolonged geopolitical volatility, oil-driven inflation risks and a potential credit cycle by leaning into higher-quality, large-cap value stocks.

In a new strategy note, Savita Subramanian laid out what the bank calls an investing roadmap for “war, oil spikes, a credit cycle and Volatility with a big V.”

On whether investors should buy the current geopolitical dip, BofA says history argues yes, noting that recent shocks saw “a ~10% average S&P 500 drop more than recovered over the next three months.”

But Subramanian warns that “the market has arguably underreacted so far,” with the S&P 500 down just 4% since the start of the Iran-Israel-U.S. conflict. She adds that institutional cash is at five-year lows, reducing the ability to buy further weakness.

On oil, BofA says higher crude prices are a mixed blessing, with a 10% rise in WTI having historically translated into a “2-3% increase in EPS growth” for the S&P 500. However, supply-driven spikes have hurt equities and act as a regressive tax on consumers.

Subramanian also cautions that expectations for more U.S. LNG exports are misplaced because the country is already exporting all the LNG it can.

For credit risks, BofA highlights weakness in financial stocks but argues the selloff is uneven, saying it remains bullish on Global Systemically Important Banks, where leverage is low and regulatory scrutiny high.

In a high-volatility regime, BofA believes quality (defined by earnings stability) outperforms, with large-cap value now scoring higher on quality metrics than growth.

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