Bank of America delivers sobering stock market take after Fed rate decision
Moz Farooque
Thu, January 29, 2026 at 1:33 PM EST
5 min read
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Bank of America feels stock market investors have gotten a little too comfortable.
After this week’s Fed rate decision left policy unchanged (as expected), the big bank’s leading equity strategist warned that AI-driven optimism is essentially leaving the rest of the market mispriced and dangerously concentrated.
For context, the FOMC maintained the federal funds target range at3.50% to 3.75% which was mostly in line with expectations.
The stock market initially shrugged off the move after briefly topping 7,000 intraday, but ended up essentially flat (down 0.01%).
Bond markets, on the other hand, saw healthier activity, with Treasury yields rising 3 basis points. Similarly, commodity markets continued their rip-roaring run, with gold up about 4%, punching through $5,300 an ounce, silver up roughly 3%, and oil hitting a fresh four-month high.
However, despite the stock market’s muted response, underneath it all, leadership remained narrow, momentum uneven, and pockets of the market flashed fatigue.
Hence, Bank of America's Head of US Equity & Quantitative Strategy, Savita Subramanian, said the outsized gains in AI have sucked all the capital into a handful of names that are showing signs of weakness, while leaving other sectors punished and priced for bad news.
Wall Street’s 2026 S&P 500 targets on record
The big banks’ 2026 S&P 500 targets were already on the tape, and the Bank of America release I covered in December was the most cautious of the group.
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Goldman Sachs: 7,600 (year-end 2026)
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Citi: 7,700 (base-case for 2026)
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Morgan Stanley: 7,800 (end-2026)
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Deutsche Bank: 8.000 (end-2026)
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Barclays: 7,400 (end-2026)
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Bank of America: 7,100 (more cautious 2026 target)
Bank of America thinks today’s market optimism may be misplaced
In a CNBC interview, Subramanian said she feels there’s a growing imbalance inside the stock market, where familiarity is being confused with safety.
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Here’s her take, broken down into five key points:
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The market is quietly broadening, even with the attention locked in on AI.
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Euphoria is real but concentrated, not a market-wide situation.
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Consumer staples are out of favor, which makes them an interesting space.
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Capital spending and manufacturing matter more than consumers right now.
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Higher long-term rates won’t crush stocks, but they might hit mega-cap growth the hardest.
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Subramanian said the day of the Fed decision itself felt “boring,” which is a telling sign in itself.
Investors are still fixated with the same AI-driven mega-cap names, even as we’re seeing things switch up with the equal-weight S&P 500 holding up better than the cap-weighted index.
Moreover, small caps are also beginning to “come back” following years in the wilderness.
Subramanian’s sentiment mirrors that of Michael Hartnett, another BofA strategist I covered, who said that inflation, politics, and policy pressures have switched things up with the stock market, leading to a rotation in leadership.
Subramanian feels that the AI and mega-cap tech trade “feels pretty darn euphoric,” making it a lot more exposed to changes in growth expectations or if rates stay higher for longer.
Consumer staples are starting to look attractive
That’s why she’s pointing to the less-loved areas, like consumer staples, that have already priced in a ton of bad news.
Related: Procter & Gamble Stock: A Dividend King with a $10 billion payout in fiscal 2026
According to Fidelity, the consumer staples sector widely underperformed the S&P 500 last year for the reasons outlined earlier.
Also, these stocks are, in fact, trading more attractively than tech.
Using S&P Dow Jones Indices-sourced forward price earnings data:
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Consumer Staples forward P/E:22.23 (Jan. 23, 2026).
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S&P 500 forward P/E:22.49 (Jan. 28, 2026).
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Information Technology forward P/E:25.68 (Jan. 23, 2026). Source: MacroMicro
In fact, bellwethers like Procter & Gamble are trading at about 21.5 times earnings, roughly 13% below their five-year average, while offering a 2.85%dividend yield.
S&P 500 calendar-year total returns (including dividends)
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2020: +18.40%
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2021: +28.71%
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2022: −18.11%
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2023: +26.29%
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2024: +25.02%
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2025: +17.88% Source: Ycharts
Capex, not consumers, is driving this market
Subramanian’s cautionary take is effectively rooted in what’s actually powering earnings growth, not a fear of higher-for-longer rates.
Related: Micron quietly unveils project of staggering size
She feels the current stock market setup is held in place by capital spending and manufacturing investment rather than by consumer demand.
So the big AI infrastructure projects, including massive data centers and industrial buildouts, have been doing the heavy lifting, and the numbers are enormous.
A Reuters report from late October said S&P 500 companies’ capex plans surged to nearly $1.2 trillion in 2025. In fact, in its latest earnings report, Meta alone guided for 2026 capex to fall in the$115 billion to $135 billion range.
Consumers aren’t driving the market, and she pointed to a worrying “air pocket” forming in skilled labor demand, specifically among recent college graduates.
For perspective, a recent college graduates tracker from the New York Fed pointed to a remarkably weaker entry-level labor market.
The report showed that in Q3 2025, unemployment for recent grads averaged at nearly 5.3% and underemployment rose to 41.8% (the highest since 2020).
On Fed rates, her stance is a lot more nuanced.
She feels that with the 10-year Treasury near the 5% mark, even without Fed cuts in play, it won't necessarily derail stocks. However, long-duration, mega-cap growth names will take a hit.
Related: Major bank revamps gold price target for 2026
This story was originally published by TheStreet on Jan 29, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.
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