According to BofA, a slowing GDP and rising earnings are ideal for US equities

The best-case scenario for equities, according to Bank of America Securities analysts, is a slowing GDP and an acceleration in profit growth.

The investment bank stated in a research report on Tuesday that the macrocycle and the stock cycle now feel distinct.

"While GDP and the labour market seem to be slowing, earnings are accelerating (LTM EPS +3% YoY)," according to BofA. "Moreover, BofA's three quantitative models all suggest a strengthening upcycle in equities."

With 97% of the S&P 500's first-quarter results completed, the EPS surpassed expectations by 3% and increased 7% annually. BofA points out that although the Magnificent 7 topped the charts, the other 493 still performed well, with all 11 industries exceeding predictions with the exception of healthcare.

"Historically, a slowing GDP + accelerating EPS backdrop has been the best macro environment for stocks," stated BofA. In their view, the primary cause of the gap is better manufacturing as opposed to slower services. As the industrial sector begins to revive, they think the market should be supported by strengthening fundamentals.

(Sources: investing.com, reuters.com)