Market briefs
Breaking insights on the economy, market volatility, policy changes and geopolitical events
Private credit turbulence: Optics vs. fundamentals
THE PRIVATE CREDIT MARKET HAS hit some headwinds in 2026, with concerns ranging from lack of liquidity for investors to the impact of artificial intelligence (AI) on corporate borrowers. “Whether you invest in private credit yourself or aren’t sure what the term means, there’s a good chance you have seen headlines warning of a potential meltdown, with implications for the broader economy and markets,” says Rolando Castellanos, head of Alternative Investments Strategy & Implementation for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank.
In a recent CIO Investment Insights report, “Turbulence in Private Credit,” Castellanos explores the latest developments and explains why he believes the more worried predictions may be obscuring private credit’s fundamental strengths and resilience.
What is private credit?
As the name implies, private credit involves loans from non-bank lenders to companies seeking capital for growth or acquisitions—importantly, these loans do not trade in public credit markets and are typically held to maturity by the lender. The most prominent form of private credit, direct lending, involves lending to mid-size companies that may have difficulty accessing credit from traditional banks or public bond markets. Private credit funds have traditionally been open mainly to large institutional investors. In recent years, however, qualified individual investors have been drawn to the asset class’s potential for higher yields and lower volatility compared to publicly traded bonds through newly developed and investor-friendly fund structures. The influx of investor capital, as well as robust demand from corporate borrowers, has contributed to rapid growth. From 2020 to 2023, the U.S. private credit market grew from $46 billion to about $2 trillion.1
Gauging the recent turbulence
In exchange for higher return potential, private credit (like all investments) comes with risks. “One tradeoff for investors is lack of liquidity,” Castellanos explains. Unlike publicly traded bonds, which can be bought and sold daily in public and generally liquid markets, private credit often requires investors to commit for several years, with strict rules governing when and how investors can remove money.2
Another risk with private credit is the possibility that a company borrowing money encounters financial troubles and defaults on its loans. For example, software companies, which account for about 20% of the direct lending market,3 have been rattled in 2026 over fears that AI might be able to perform many of their functions. Amid these and other concerns, investments flowing into private credit funds have slowed, and more investors have been attempting to remove money,4 only to find that redemptions are being limited, delayed or are not accessible.
Keeping things in perspective
“The social media-driven news cycle has focused on gating events at certain private credit funds as a sign of financial distress, when it appears underlying stress is limited and the fund structures appear to be working as intended,” Castellanos notes. “The asset class should always be viewed with a long time horizon, not treated as a liquid instrument. And while investor discomfort with queues is understandable, limits on redemptions help fund managers preserve value.”
Concerns over the underlying health of the private credit market “seem to have more to do with optics than financial fundamentals,” Castellanos believes. “To date, borrower fundamentals have been stable, with revenue, operating profits, margins and coverage ratios [the ability of borrowers to service its debts] steady or modestly improving,” he adds, based on his review of recent data.5
Considerations for investors
Private credit turbulence, while real, is just one of many uncertainties – geopolitical risks, inflation, an uncertain job market, and more – capturing headlines today. It’s always important, believes Castellanos, to avoid overreacting to daily news and stay diversified and invested towards long-term goals.
For qualified investors who have invested in private credit or are considering doing so, now may be a good time for a conversation with an advisor, who can discuss whether this asset class makes sense for your situation and goals, and that it is properly balanced with other types of assets in your portfolio, he adds.
Read the Investment Insights article for a closer look at the private credit market. Listen to our latest CIO Market Update audiocast, and check here for regular updates on the broader economy and markets.
1Federal Reserve Bank of Boston, “Could the Growth of Private Credit Pose a Risk to Financial System Stability?” May 21, 2025..
2Morningstar, “Private Credit Faces Its First Redemption Cycle: What Investors and Advisors Need to Know,” March 20 2026.
3BofA Global Research. As of February 2026.
4The Wall Street Journal, “An Exodus of Money Endangers Wall Street’s Private-Credit Craze,” March 12, 2026.
5SEC filings, BofA Global Research, Lincoln International (Lincoln U.S. Senior Debt Index), Cliffwater LLC (Cliffwater Direct Lending Index), as of March 2026.
Alternative investments are speculative and involve a high degree of risk. Alternative investments are intended for qualified investors only. Alternative Investments such as private credit 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. Investments in private markets involve a high degree of risk and therefore should only be undertaken by qualified investors whose financial resources are sufficient to enable them to assume these risks and to bear the loss of all or part of their investment. Investments in private markets include significant risks not otherwise present in public market investments. Furthermore, private market investors are afforded less regulatory protections than investors in registered public securities.
Investments in private credit involve a high degree of risk, while the investment may be subject to many of the risks associated with traditional fixed income investments such as the credit quality of individual issuers, possible prepayments, economic developments and yield fluctuations due to changes in interest rates, they also carry more risk than traditional loans because borrowers are often below investment grade, meaning there is a higher chance they will have trouble repaying the debt and therefore should only be undertaken by qualified investors whose financial resources are sufficient to enable them to assume these risks and to bear the loss of all or part of their investment. Traditionally, non-investment grade borrowers are graded as BBB or lower by credit ratings firms like Standard & Poor’s or Moody’s. Because of this low rating, investors usually demand a higher interest rate to offset the risk of default. Investments in private credit include significant risks not otherwise present in public market investments. Furthermore, private credit investors are afforded less regulatory protections than investors in registered public securities.
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Understanding the latest Federal Reserve rate pause
AMID MIXED SIGNALS ON JOBS AND INFLATION, the Federal Reserve (the Fed), as widely expected, held steady on interest rates at its March 18 meeting. The decision, which leaves the federal funds rate at between 3.50% to 3.75%, marks the second pause in 2026, following three consecutive rate cuts to close out 2025.1
Why the pause?
The economy’s surprising loss of 92,000 jobs in February2 might have argued for an additional rate cut to stimulate hiring. But surging oil prices since the Middle East conflict started on Feb. 28 have raised concerns that stubborn inflation could reignite — the Fed typically fights inflation by raising rates to cool the economy. “The Fed is walking a fine line between its goals of maximum employment and moderate inflation,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.
What’s next for the economy and rates?
“While some observers have warned of 1970s-style stagflation, when prices rise while the economy sputters, that’s not our base case,” Hyzy says. “U.S. energy production has made the economy more resilient against oil shocks. And the economy, despite some concerns, remains fundamentally strong.” In addition, Hyzy says, “We expect the current rate-cutting cycle to resume later this year, but the pause will likely continue until the Fed has greater clarity on where the Middle East conflict, and inflation, are headed.”
How can investors respond?
Investors might take a page from the Fed’s playbook by remaining patient and avoiding hasty responses to geopolitically driven volatility, Hyzy advises. “Stay diversified across asset classes and invest with long-term goals in mind,” he adds. “Periodically rebalance and look at temporary declines as potential opportunities to add to your portfolio.”
Read the recent Capital Market Outlook article, “The Stagflation Scenario.” Listen to our latest CIO Market Update audiocast, and check here for regular updates on interest rates and other forces shaping the economy and markets.
Navigating a new world of uncertainties in 2026
A WAR-RELATED SPIKE IN OIL PRICES DROVE SHARP VOLATILITY in stocks as markets opened for the week of March 9.1 Oil briefly topped $100 barrel — 40% higher than before the U.S. and Israel launched missile attacks on Iran on Feb. 282 — raising fears over broader economic impacts if the war widens and drags on. And the Middle East is just one of many concerns in a year of uncertainties. “Investors should expect elevated volatility in the months ahead,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. “At the same time, it’s important to stay focused on the underlying forces driving long-term growth.”
Seeking signs of stability
In addition to oil prices and stock volatility, the Chief Investment Office will be watching several key market factors in the coming weeks for signs that conditions are stabilizing, Hyzy says. For example, credit spreads (the difference in yield between corporate bonds and U.S. Treasurys of similar duration) have been widening — often a sign of investor concern about the economy. “We’re also closely following inflation, the strength of the U.S. dollar, and bond yields and rates, all of which should help dictate what’s ahead for asset prices in the short and medium term.”
Watch Chief Investment Officer Chris Hyzy put market volatility into context.
Tracking other uncertainties
Even without the Middle East conflict, other pressures have the potential to jolt investors and markets in 2026. One example: “Midterm elections, coming in November, typically bring higher-than-normal volatility,” Hyzy says. Among the other possible contributors to volatility: the impact of artificial intelligence on the software industry, stresses in the private credit market, the partial government shutdown and its potential impact on the travel industry, the impact of tariffs, and more.
Keeping a long-term focus
While an extended war and persistently high oil prices present risks for the global economy, historically geopolitical events of this nature have had limited long-term impact, Hyzy notes. And the U.S., as a leading energy producer and net exporter of oil, may be less vulnerable than other regions to oil shocks, he adds. As for the other uncertainties, the volatility they may create, while unsettling, will likely be temporary, Hyzy believes. For example, “despite the volatility midterm elections cause, markets historically have hit new highs a year later,” he adds.
“Given all the uncertainties, there’s no clear timetable for market stabilization,” Hyzy says. “We continue to emphasize patience, a balanced, diversified approach, and having a detailed plan to buy or rebalance on weakness.” He advises long-term investors to avoid trying to “time” markets and instead stay focused on broader trends such as corporate earnings growth, rising capital investment, productivity, accelerated innovation and global economic growth.
For more perspective on the latest market moves, read Hyzy’s Investment Insights article, The Six Senses, from March 9. Listen to our latest CIO Market Update audiocast, and check here for regular updates on the Middle East conflict and other volatility risks as the year progresses.
Conflict in the Middle East: What to expect as markets open
THE UNITED STATES AND ISRAEL ON FEBRUARY 28 launched a military campaign against Iran, with retaliatory strikes hitting Israel and other countries in the Middle East over the weekend.1 “As markets open March 2, investors are preparing for potentially significant volatility,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.
“Considering the many risks as tensions rise, we emphasize maintaining the highest level of diversification across all risk profiles,” Hyzy adds. “That includes potentially allocating to areas that may see upward pressure as the military campaign unfolds.” A new Investment Insights report details potential short-, medium- and long-term outlooks for industries and the economy.
Short-term outlook (three months)
“While U.S. economic uncertainties and market volatility will likely rise, fiscal and monetary support should keep the U.S. economy clear of recession and corporate profit growth intact,” Hyzy believes. Expect higher gold and energy prices, especially if tanker passageways shut down. The energy and defense industries could rally, with consumer staples and healthcare outperforming. Cyclical stocks such as luxury goods and airlines may underperform, and technology could continue to struggle. And look for the U.S. dollar to strengthen and U.S. Treasurys to outperform credit markets, Hyzy believes.
Medium-term outlook (six to 18 months)
“Equity volatility should eventually fall towards normal levels,” Hyzy believes. “Look for high-quality, dividend-paying stocks, utilities and industrials to lead, while technology and financial shares stabilize.” The dollar should weaken slightly and credit markets stabilize and start to outperform Treasurys. “While uncertainties over upcoming mid-term elections could prompt investors to add non-U.S. exposure, we believe global and U.S. economic growth could surprise to the upside.”
Longer-term outlook
“While the current uncertainties are deeply concerning in many ways, we do not expect a material effect on the global economy or corporate profits overall,” Hyzy says. Historically, of 14 major geopolitical events since 1962, the S&P 500 index was up an average of 9.5% one year later,2 he notes. “Our themes for long-term growth continue to be areas such as aerospace and defense modernization, robotics and automation, the biotechnology renaissance, new infrastructure, agentic AI applications and more.”
What you can do
“In the very short term, investors should allow expected market volatility to subside somewhat before rebalancing portfolios,” Hyzy suggests. “But have plans ready to take advantage of market weakness when tensions ease.” Any potential adjustments should be guided by a long-term investment strategy based on your personal goals rather than trying to anticipate events, he says. “Timing markets is too difficult in normal conditions, let alone during periods of excessive geopolitical risk.”
Read the Investment Insights article for a closer look at what to expect in the days and months ahead. Listen to our latest CIO Market Update audiocast, and check here for regular updates as the situation evolves.
Surprise: A shrinking budget deficit — for now
THROUGH FOUR MONTHS OF FISCAL YEAR 2026, the U.S. government’s budget deficit hit $697 billion. Big as that sounds, it’s 17% lower than the deficit over the same period in FY 20251 — a welcome twist in a government spending story often focused on spiraling increases. A new Capital Market Outlook report from the Chief Investment Office (CIO), “The 17% no one’s talking about,” examines this development.
What’s driving the decline
“While spending increased 2% year over year, individual income tax receipts, which account for the lion’s share of government revenue, climbed 12%,”2 says Ariana Chiu, investment strategist with the CIO and author of the report. “Higher tax revenue suggests that the labor market, despite recent weakness, remains healthy.” Another factor: some $30 billion in average monthly tariff revenue since the fiscal year started on October 13 — though the future of that revenue source is uncertain following the Supreme Court’s February 20 ruling impacting many tariffs.
Why deficits matter to investors
U.S. debt and deficits in recent years have contributed to worries about the dollar’s role as global reserve currency and whether so-called “bond vigilantes” — activist investors who sell off government bonds when they are displeased with fiscal or monetary policy — might abandon U.S. Treasurys, a bedrock asset class for bondholders. “So far, those fears have failed to materialize, and the first third of the fiscal year may provide some fiscal runway,” Chiu says. “The broader economy offers more good news, with real economic growth tracking well above trend.”
Could U.S. Treasurys be at risk in the future?
Despite these positives, U.S. government spending remains a concern, Chiu notes, particularly with the national debt topping $38 trillion.4 “Between trillion-dollar interest payments, tax cuts under the One Big Beautiful Bill Act and the push for affordability relief ahead of the midterm elections, the budget deficit this year is likely to remain elevated,” she says. Moving the deficit to a more manageable 3% of GDP would likely require politically unpopular spending cuts, Chiu adds. So, the government is likely to continue relying for funding on bond purchasers, including foreign creditors who own roughly 30% of publicly held U.S. debt.5
Bottom line: “For now, the bond vigilantes have been quiet, though they could return if we see a surge in fiscal stimulus,” Chiu says. While that risk bears watching, “U.S. Treasurys remain one of the world’s most attractive investments and, for most investors, a key component of a long-term portfolio built to pursue personal goals,” she adds.
Read the February 17 Capital Market Outlook for a closer look at the U.S. deficit, and for latest updates on the economy and markets, tune in regularly to the CIO’s Market Update audiocast.
1U.S. Treasury, Congressional Budget Office. Data through January 2026, as of February 10, 2026.
2U.S. Treasury, Congressional Budget Office. Data through January 2026, as of February 10, 2026.
3CNBC, “Tariff revenue soars more than 300% as U.S. awaits Supreme Court decision,” Feb. 11, 2026.
4U.S. Treasury, “What is the national debt,” as of Feb. 20, 2026.
5Congress.gov, “Foreign holdings of federal debt,” May 23, 2025.
The Supreme Court rejects tariffs. What now?
THE U.S. SUPREME COURT ON FEBRUARY 20 STRUCK DOWN many of the global tariffs imposed by the White House starting in 2025.1 While a clear setback for the administration’s broad use of tariffs as a tool in trade disputes and geopolitical relations, the decision leaves many unknowns to be worked out in the weeks ahead.
What we know
In a 6-3 decision, the court specifically rejected the administration’s claims of authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA), saying that would amount to “a transformative expansion” of presidential authority. The majority opinion noted that “in IEEPA’s half century of existence, no President has invoked the statute to impose any tariffs, let alone tariffs of this magnitude and scope.”2
Still to be worked out
The economic implications of the decision are not immediately clear. Left uncertain, for example, is the issue of any refunds that may be due on the billions of dollars in tariffs already collected.3 The ruling does not invalidate all the tariffs, only those imposed under the IEEPA, and the administration may explore other means to impose tariffs.4
Market reaction
At least initially, markets responded favorably to the news, with the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite posting early gains.5 “Consumer stocks in particular may benefit, especially those with supply chains in Asia,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. While it’s too early to know the long-term market impact, “the news does not alter our bull market thesis and overweight on equities.” Investors should stay focused on the broader themes of strong corporate fundamentals and accelerating global economic growth, he adds.
For more on this topic, please read the CIO’s February 20th edition of Weekly Market Insights. For latest updates on tariffs, the economy and markets, tune in regularly to the CIO’s Market Update audiocast.
1The Wall Street Journal, “Supreme Court strikes down Trump’s tariffs,” Feb. 20, 2026.
2Supreme Court of the United States, “Opinions of the Court – 2025,” Feb. 20, 2026.
3The Wall Street Journal, “Supreme Court strikes down Trump’s tariffs,” Feb. 20, 2026.
4NBC News, “Supreme Court strikes down most of Trump’s tariffs in a major blow to the president,” Feb. 20, 2026
5CNBC, “S&P 500 jumps after Supreme Court knocks down Trump’s emergency tariffs: Live updates,” Feb. 20, 2026.
Is recent tech volatility AI’s ‘do or die’ moment?
AFTER YEARS OF MARKET DOMINANCE, fueled by the rapid expansion of AI, technology stocks in 2026 have been notable mainly for their volatility. Software companies dropped more than $400 billion in value earlier this month,1 and companies ranging from semiconductors to AI infrastructure have been battered.2 “While it may feel like a major retreat from technology, we see this as part of a natural rotation towards greater balance between technology and other sectors,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.
A recent article from the Chief Investment Office (CIO), “More Rotation Than Retreat,” details what’s going on and how investors can respond.
A rotation months in the making
Despite the recent headlines, the tech rotation actually started in 2025, when five of the “Magnificent Seven” tech giants underperformed the S&P 500 index.3 “One explanation may involve investor fatigue after years of paying premium valuations for those companies,” says Kirsten Cabacungan, CIO investment strategist and author of the report.
More fundamentally, notes Hyzy, “Investors who leapt to embrace AI are now asking hard questions: Where are the bottlenecks? Will there be enough energy to power the data centers? Who will the winners and losers be?” The early February software selloff, for example, was prompted by concerns that emerging AI tools could replace some core services currently provided by software companies. “This rethinking process happens with every major innovation,” Hyzy says. “While tech companies may no longer benefit indiscriminately from investor enthusiasm, the transformative power of these new technologies is undimmed.”
Broadening markets, underlying strengths
As markets take a breather on big tech, one offshoot has been a healthy broadening of markets. “A growing number of stocks in sectors such as materials, healthcare, industrials and consumer staples have reclaimed long-term uptrends,” Cabacungan says. “This expanding participation suggests the bull market has developed a stronger and more durable foundation.” As evidence, markets shrugged off tech sector woes and surged to new highs in early February.4 Hyzy adds, “We believe the U.S. economy will surpass 5% nominal GDP growth in 2026.”
Focus on diversification
“Investors should expect additional periodic tech volatility as the sector evolves,” says Hyzy. These uncertainties underscore the importance of investing in a range of companies and technologies. Investing across industries could help you potentially benefit from broadening market performance, and with mega-cap companies struggling, you might consider the growth potential of mid- and small-cap stocks. “Above all, be patient and stick to an investment strategy built for your long-term goals.”
For more on AI, watch “Progress report: Is AI a market bubble?” To keep up with the broader markets, tune in regularly to the Market Update audiocast from the Chief Investment Office.
1Axios, “AI wiped out $400 billion this week – and it’s only getting started,” Feb. 7, 2026.
2The Wall Street Journal, “Intensifying tech slide sends Nasdaq to worst two-day drop since April,” Feb. 4, 2026.
3Los Angeles Times, “Top tech titans’ dominance wanes in 2025,” Jan. 12, 2026.
4CNN, “Stocks hit historic milestone as Dow crosses 50,000 points for the first time ever,” Feb. 6, 2026.
What to expect from the latest government shutdown
THE U.S. GOVERNMENT ENTERED A PARTIAL SHUTDOWN at midnight on Friday, February 13, affecting continued funding for the Department of Homeland Security (DHS). The stumbling block: the inability of lawmakers to reach a consensus on potential reforms to Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP), which DHS runs.
This is the third such event in recent months. A four-day partial shutdown affecting numerous agencies ended Feb. 3,1 and a sweeping, 43-day shutdown, the longest on record, ended last November.2
How we got here
While the Feb. 3 agreement assured funding for most federal government operations, it funded DHS only through Feb. 13, giving Congress and the administration just days to resolve sharp differences in the wake of high-profile ICE confrontations in U.S. cities.3 When those talks broke down, the latest shutdown was unavoidable.
What operations will be affected?
While ICE and CBP are at the center of the shutdown dispute, reports suggest they could be unaffected thanks to funding provided under the 2025 One Big Beautiful Bill Act.4 Other key DHS functions include the Federal Emergency Management Agency (FEMA), the Transportation Security Administration (TSA), the United States Coast Guard, and more.5 While essential functions continue during government shutdowns, some workers may be furloughed while others work with no paychecks until the shutdown ends. Travelers could experience travel delays and other disruptions.6
How will markets respond?
“Despite the seriousness of the underlying issues and the potential for inconveniences, the shutdown will likely have little lasting impact on markets and investors,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. “History suggests that markets recover quickly from any volatility related to even extended shutdowns, so we emphasize sticking to your long-term investment strategy.”
Tune in regularly to the CIO’s Market Update audiocast for ongoing insights, and check back here for further updates on the shutdown and other market conditions.
1The New York Times, “Trump signs bill to reopen government,” Feb. 3, 2026.
2PBS News, “Trump signs government funding bill, ending record 43-day shutdown,” Nov. 13, 2026.
3The New York Times, “Trump signs bill to reopen government,” Feb. 3, 2026.
4Cato Institute, “The One Big Beautiful Bill made ICE shutdown-proof and eroded fiscal norms,” Feb. 10, 2026; The Hill, “DHS faces weekend shutdown with ICE talks inching forward,” Feb. 11, 2026.
5DHS, “Operational and support components,” Jan. 28, 2026.
6CBS News, “Democrats reject latest White House offer on ICE reforms with Homeland Security hanging in the balance,” Feb. 10, 2026.
The Federal Reserve holds steady on rates
AS WIDELY EXPECTED, THE FEDERAL RESERVE (the Fed) made no move to lower the federal funds rate at its January 28 meeting. “We’re in the middle of a rate-cutting cycle, which tends to be positive for economic growth and equities,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Yet after three cuts in 2025, most recently in December, “the Fed will carefully analyze a range of economic data before determining when to resume cutting in the coming months,” Hyzy believes.
Balancing inflation and labor market concerns
The Fed adjusts interest rates to balance its two primary objectives, full employment and controlled inflation. Lower rates stimulate the economy and hiring; higher rates tend to slow the economy, tamping down rising prices.
“We believe the economy is gathering momentum, with inflation still above the Fed’s 2% target,”1 says Hyzy. At the same time, he believes, “a softening labor market is clearly a concern,” with the U.S. economy adding a lower-than-expected 50,000 jobs in December.”2
“This month’s decision does not prevent the Fed from deciding to drop rates later in the year if that trend continues,” Hyzy adds. And come May, a new Fed chair will enter the equation. “We currently expect two additional cuts in 2026.”
Read “Plan ahead to take advantage of Fed rate cuts” for insights on how an ongoing lower-rate environment could affect your investments and financial life this year. For more market insights from the Chief Investment Office (CIO), tune in regularly to the CIO’s Market Update audiocast.
How to prepare for a possible government shutdown
PUSH MAY BE COMING TO SHOVE. Barring an eleventh-hour agreement to continue funding the government past midnight on September 30, a partial government shutdown will begin on October 1, and it won’t end until a continuing resolution is passed by both houses of Congress and signed into law.1
Which government services would be suspended?
There are exceptions for specified, essential government services, including Social Security and Medicare, airport security and air traffic control, national defense and Treasury debt payments, with employees involved in those functions required to work without pay. Most other agencies, though, will stop operating and furlough their workers. (The White House Office of Management and Budget has reportedly warned programs that aren’t required by law to prepare for workforce reductions if a shutdown occurs.2)
What could a shutdown mean for investors?
Although a partial government shutdown would be disruptive, especially for federal workers and those who depend on many government services, it’s not likely to have much impact on financial markets, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. “Markets have tended to recover quickly during past shutdowns, making any resulting volatility a short-term distraction for investors.”3
Some historical perspective: There have been 14 other partial shutdowns since 1981. Many have been very brief, but the most recent, from late December 2018, lasted 34 days. S&P 500 returns during the three, six and 12 months after that shutdown were 15.8%, 21.9% and 33.4%, respectively.3
How could a shutdown affect the economy?
A shutdown would likely underscore continuing policy disputes, adding to uncertainty and concerns about rising government debt and deficits. Still, “we believe the economy will likely quickly recover any losses during the shutdown, and any market volatility is likely to subside once the government reopens,” says Hyzy.
How can investors respond?
For investors, the most important guidance is to avoid taking precipitous actions based on daily headlines or predictions of which way the market will head next, he says. “While the ups and downs can be concerning, we see market volatility as a potential opportunity to strategically add to your long-term portfolio, given our overall optimistic view of the current corporate profits cycle.”
Keep in mind, he adds, that missing out on the potential gains that could follow when markets rebound can be costly. If you work with an advisor, now might be a good time to get together and review the risks and potential opportunities the current markets create.
For more insights, read “What you can do when the markets get volatile,” and tune in regularly to the CIO’s Market Update audiocast series.
1ABC News, “The government could shut down in less than a week. Here's what you need to know,” Sept. 24, 2025.
2CNBC, “Trump OMB orders preparation for mass firings of federal workers if government shuts down,” Sept. 25, 2025; Politico, “White House to agencies: Prepare mass firing plans for a potential shutdown,” Sept. 24, 2025.
3Sources: U.S. House of Representatives; Chief Investment Office. Data as of July 2023.
The Fed rate cut: A cue to review your investments
THE FEDERAL RESERVE (THE FED) LOWERED the federal funds rate by .25% on Wednesday, September 17, marking the first Fed rate cut since December 2024. “The Fed has signaled the possibility of two more cuts before year end, with additional cuts possible in 2026,”1 says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.
Is a weakening economy behind the cut?
The Fed typically lowers rates to jumpstart an economy showing signs of slowing. The economy added only 22,000 jobs in August and unemployment, a key concern for the Fed, rose.2 That’s what prompted the much-anticipated rate cut, even though inflation, the Fed’s other key concern, remains higher than its 2% target.
In this case, however, the economic news isn’t all bad. Despite a softening labor market and sticky inflation, “consumers are spending, corporate earnings and capital expenditures remain strong and equity markets have been reaching new highs,” says Hyzy. “With a period of declining rates likely to follow today’s rate cut, investors may want to consider making some portfolio adjustments.”
Lower rates = higher returns?
While markets rallied in advance of the September cut, there are strong indications of additional room to grow, Hyzy believes. In addition to easier access to capital stemming from an easing rate environment, companies are poised to benefit from a host of tax incentives contained in this year’s “One Big Beautiful Bill.”
3 moves for investors to consider now
Lock in longer-term bond rates before they fall. “Putting money into longer-term bonds before rates drop further could help you diversify equity risk with higher, more stable income,” Hyzy says. For more insights on how your bond holdings could be affected by an easing rate environment, watch “What do Fed rate cuts mean for the bond market?”
Look for potential buying opportunities. “For growth, we would view any temporary market weakness as an invitation to strategically invest in equities, especially if you have excess cash,” he says. The declining rate environment may create potential opportunities in areas such as real estate, industrials and financials.
Take a look at small-cap companies and infrastructure stocks. Small caps may benefit from easier access to capital. Meanwhile, says Hyzy, the massive buildout of data centers to power artificial intelligence could also create long-term opportunities in infrastructure.
As always, consider diversifying across and within asset classes, and keep in mind that any portfolio changes should align with your long-term goals, Hyzy advises. For help staying on top of the markets, tune in weekly to the CIO’s Market Update audiocast, and check here for updates on interest rates and other economic and market conditions.
Important Disclosures
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Opinions are as of the date of these articles and are subject to change.
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.”).
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.
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. 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 a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
Investments in foreign securities 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. 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.
Income from investing in municipal bonds is generally exempt from Federal and state taxes for residents of the issuing state. While the interest income is tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the Federal Alternative Minimum Tax (AMT).
Retirement and Personal Wealth Solutions is the institutional retirement business of Bank of America Corporation (“BofA Corp.”) operating under the name “Bank of America.” Investment advisory and brokerage services are provided by wholly owned non-bank affiliates of BofA Corp., including Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as "MLPF&S" or "Merrill"), a dually registered broker-dealer and investment adviser and Member SIPC. Banking activities may be performed by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A., Member FDIC.
You have choices about what to do with your 401(k) or other type of plan-sponsored accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over a 401(k) from a prior employer to a 401(k) at your new employer, take a distribution, or leave the account where it is. Each choice may off er different investments and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment (particularly with reference to employer stock), and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care.
Diversification does not ensure a profit or protect against loss in declining markets.
Sustainable and Impact Investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.
Investing in Gold involves special risks, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes, and the impact of adverse political or financial factors.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. Stocks of small- and mid-cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Investments focused in a certain industry or sector may pose additional risks due to lack of diversification, industry volatility, economic turmoil, susceptibility to economic, political or regulatory risks and other sector concentration risks.
