A new narrative for global assets may be shifting from "technology dominance" to "industrial and credit expansion." According to analysis from Bank of America's RIC team, combining public data with proprietary high-frequency indicators reveals a consistent signal: manufacturing orders, Asian exports, and semiconductors—particularly analog chips—are all indicating that a new industrial cycle may be starting. This suggests that earnings potential for 2026 could exceed current market consensus.

Bank of America investment and ETF strategist Jared Woodard noted, "We may be standing at the threshold of a new global industrial cycle." He points to a combination of strong hard data, improving soft data, and strengthening industrial momentum indicators as evidence, directing attention to asset allocation opportunities beyond crowded trades.

The bank attributes past bottlenecks in manufacturing expansion to unfavorable credit terms rather than lack of demand. If regulatory constraints—such as lending guidance and capital requirements—continue to ease into 2026, the banking system could release over $1 trillion in new capital, making industrial expansion more sustainable and less reliant on sentiment and inventory rebuilding.

At the same time, Bank of America warns of another trend: as liquidity and leverage recede from "unknown corners" of the market, opaque and hard-to-exit assets such as SPACs, crypto assets, and private credit may face heightened risks.

Clues of the industrial cycle are emerging, with hard data leading the way and proprietary indicators rising. Bank of America's standardized comparison shows hard data in January was 0.4 standard deviations above its long-term average, while survey-based sentiment indicators have rebounded to their highest level since May of last year—though still 0.4 standard deviations below the long-term average. The University of Michigan Consumer Sentiment Index rose to 57.3 in February, the highest since August.

More importantly, several of Bank of America's proprietary high-frequency indicators have strengthened simultaneously:

- Industrial momentum indicators have reached their best level since December 2021, suggesting further upside for global manufacturing PMI. - The Fluid Dynamics Survey's global outlook climbed to 73. - The Truck Freight Survey showed demand surpassing 60, the best since April 2022, with capacity tightening to its lowest since March 2022. - Storage indicators have exceeded their 2021 highs.

Together, these suggest that market momentum may no longer rely solely on "debt-driven consumption" or fiscal transfers, as organic growth from the industrial sector becomes more visible.

Credit conditions may be the missing piece of the puzzle. Regulatory reforms could extend the cycle. Bank of America argues that the main obstacle to manufacturing expansion has been unfavorable credit terms. While private credit can fill part of the gap, it comes at a higher cost. A shift in regulatory guidance could make the banking system a much larger variable.

Several data points support the idea that improving credit conditions are worth betting on:

- The NACM Credit Managers’ Survey shows manufacturing sales at their highest level since 2022, historically correlating with around 4% U.S. GDP growth. - The rise in "new orders" within the ISM Manufacturing PMI has historically implied GDP growth above 3.5%. While the report acknowledges survey volatility and does not treat it as a forecast, it reinforces the view that growth may exceed consensus.

On the banking side, the report outlines a clearer path for regulatory easing: U.S. large banks currently hold an average of 3.4 percentage points in excess capital above regulatory requirements. Capital requirements are projected to fall by nearly 1 percentage point by 2026. Potential reforms mentioned by Ebrahim Poonawala include adjusting GSIB surcharges, which could lower CET1 requirements to 13%—the lowest since 2011—and modifying Basel Endgame rules and the $100 billion asset threshold, reducing regulatory arbitrage between banks and non-banks.

These details are central to the report's argument that the industrial cycle is not just a temporary data rebound but a tradable macro mechanism.

Semiconductors, especially analog chips, are driving the cycle globally, resonating with South Korean export trends. Bank of America treats semiconductors as a leading indicator of the industrial cycle, emphasizing analog chips due to their closer ties to industrial, defense, and power demand.

The bank forecasts 30% year-over-year growth in chip sales by 2026, potentially marking the first "trillion-dollar year" for the industry. Structurally, this includes a 48% rebound in memory and 22% growth in non-memory core semiconductors. Memory price performance has already exceeded expectations this year.

Another global clue comes from South Korea. The report explains that January's nearly 34% year-over-year export growth was driven by a sharp rebound in memory chip prices, accelerated AI demand amid tight supply, and the shift of some traditional memory capacity and capital expenditure toward AI data center products—which in turn pushed up prices and export values for broader consumer memory. The report also links changes in South Korean exports to MSCI ACWI forward EPS growth, suggesting ACWI EPS growth could reach 27% over the next year, well above the 13% market consensus.

The point is not that South Korea drives global trends, but rather that when exports and chip prices strengthen in tandem, the risk of upward revisions to global earnings is underestimated.

Expansion trades are profitable, but capital still favors stagnant assets. Year-to-date returns highlight the success of expansion themes: small/mid-cap industrials up 22%, nuclear energy 20%, gold 18%, global defense 15%, emerging markets ex-China 14%, and developed market small-cap value 13%. In contrast, the S&P 500 returned only 2%, U.S. Treasuries near 0%, large-cap U.S. growth stocks fell 3%, and the traditional 60/40 portfolio returned just over 1%.

The problem is that positioning has not kept pace. Fund and ETF flow data from the RIC team show that over the past decade, "expansion assets" have seen cumulative inflows of approximately $0.3 trillion, compared to $1.6 trillion for "stagnant assets"—a $1.3 trillion gap. In other words, while the trade is no secret, allocation remains scarce.

This is why the report repeatedly emphasizes that investors remain overweight the winners of the past two decades—large-cap tech and high-grade bonds—even as the scarcity of credible returns is changing.

Receding liquidity in "unknown corners" exposes risks tied to leverage, liquidity, and transparency. The report groups SPACs, crypto assets, and private credit together, noting that as public company supply has shrunk—U.S. listed firms have halved over 30 years—ample liquidity and scarce growth have pushed capital into less-known areas. A downturn beginning in Q3 2025 has made old risks expensive again.

Several stark comparisons are highlighted:

- SPAC deal volume reached $37.6 billion in 2025, the third-highest year on record, but post-merger returns have not justified the risk. A top publicly traded SPAC index gained only 9% over five years, significantly underperforming U.S. small caps (+41%). The report also cites research suggesting $3 in fees for every $10 raised via SPAC. - Bitcoin's valuation remains speculative—lacking cash flows, clear utility, or a long-term store of value history—with annualized volatility often exceeding 100%. - Private credit redemption limits are stark: with quarterly caps at 5%, full exit could take five years. BDCs and private credit also have higher exposure to software (18%) than bank loans (12%) or high-yield bonds (2%). Over the past 12 months, a BDC/fund index with high private credit exposure fell 16%, while CLO ETFs, syndicated loans, and high-yield bond ETFs returned 5–8%.

The report concludes with a clear lesson: leverage + illiquidity + opacity is an unstable mix—and uncompensated risks hurt the most. Valuation always matters.