A new global "industrial cycle" is emerging.

The narrative of global assets may be shifting from “technology leading the way” to “industrial and credit expansion.”

According to the Wind trading desk, the Bank of America RIC team, in their latest research report, combined a set of public data and proprietary high-frequency indicators and concluded: Manufacturing orders, Asian exports, and semiconductors (especially analog chips) are all signaling the same thing — a new industrial cycle may be beginning, which suggests profit margins in 2026 could be higher than consensus expects.

Jared Woodard, strategist for Bank of America’s investment and ETF strategies, wrote: “We may be on the cusp of a new global industrial cycle.” He views the combination of “strong hard data + recovering soft data + strengthening industrial momentum indicators” as evidence pointing directly to asset allocation: opportunities are more likely outside crowded trades.

Bank of America attributes the recent years’ bottleneck in manufacturing expansion to unfavorable credit terms rather than weak demand; if lending guidelines and capital provisioning constraints continue to loosen in 2026, the banking system could release over $1 trillion in new capital, making industrial expansion less reliant on sentiment and inventory rebuilding alone.

At the same time, Bank of America also warns of another trend: as liquidity and leverage in the “unknown corners” recede, opaque and hard-to-exit assets like SPACs, cryptocurrencies, and private credit will be the first to show problems.

Clues to the industrial cycle: hard data leads, proprietary indicators rise

Bank of America first standardized and compared “hard data” and “soft data”: January’s hard data was 0.4 standard deviations above the long-term average, while survey-based sentiment indicators returned to their highest levels since May last year (still 0.4 standard deviations below the long-term average). The University of Michigan Consumer Sentiment Index in February rose to 57.3, the highest since August last year.

More critically, several of Bank of America’s proprietary high-frequency indicators simultaneously turned stronger:

The industrial momentum indicator reached its best level since December 2021, used to infer that “the future global manufacturing PMI still has upside potential”;

The Fluid Dynamics Survey’s global outlook rose to 73; in the trucking freight survey, “demand” broke above 60 (best since April 2022), and capacity also tightened (lowest since March 2022);

Inventory indicators have already surpassed their 2021 highs.

All these point to a key conclusion: this market cycle may no longer be driven solely by “debt-fueled consumption” or “fiscal transfers,” but rather, organic growth on the industrial side is beginning to become visible.

Credit conditions may be the missing piece: lending reforms could extend the cycle

Bank of America believes that the main obstacle to manufacturing expansion is “unfavorable credit terms.” Private credit can only fill part of the gap and at higher costs; if regulatory guidance and capital requirements shift, the banking system could release more than $1 trillion in new capital by 2026, extending the cycle beyond just sentiment and inventory rebuilding.

Several data points in the report serve as corroboration that “credit improvement is worth betting on”:

• The NACM Credit Managers’ Index shows manufacturing sales at their highest since 2022, which, based on historical relationships, could correspond to about 4% US GDP growth (r²=0.47).
• The upward trend in the “New Orders” component of the ISM Manufacturing PMI historically implies a GDP contribution of over 3.5% (r²=0.36, since 1948). The report also notes that survey volatility is high and not predictive, but the direction favors “above consensus” expectations.

On the banking side, the report provides more specific constraints and potential easing paths: the average excess capital held by large US banks is 3.4 percentage points above regulatory requirements; capital requirements are expected to decline by nearly 1 percentage point by 2026. Ebrahim Poonawala mentions potential reforms including adjusting GSIB additional capital requirements to bring CET1 down to 13% (the lowest since 2011), and changes to Basel End Game and the $100 billion asset threshold, reducing regulatory arbitrage between banks and non-banks.

These details are central to how the report extends the “industrial cycle” from a rebound in data to a “macro mechanism that can be traded.”

Semiconductors drive the cycle globally: analog chips and Korean exports resonate

The report treats semiconductors as a “leading indicator” of the industrial cycle, with particular emphasis on analog chips, which are more closely aligned with industrial, defense, and power sector demand.

Bank of America projects that by 2026, chip sales could grow 30% year-over-year, potentially reaching the first-ever “$1 trillion year.” The structure involves a 48% rebound in memory chips and 22% growth in non-memory core semiconductors; notably, memory prices have already exceeded expectations this year.

Another global clue comes from Korea. Bank of America explains the near 34% year-over-year export increase in January: a sharp rebound in memory chip prices, accelerated AI demand, and supply tightness, with some traditional memory capacity and capex shifting toward AI data centers, boosting broader consumer storage prices and exports. The report also links “Korean export changes” with “MSCI ACWI forward EPS growth,” suggesting that this relationship could imply a 27% EPS growth for the index over the next year, well above the 13% market consensus.

The point isn’t that “Korea can decide the world,” but rather: when exports and chip prices move in the same direction, the upside risk to global earnings may be underestimated.

Expansion trades are profitable, but funds still favor “stagnant assets”

The report highlights year-to-date returns to illustrate the profitability of “expansion trades”: small/mid-cap industrial stocks up 22%, nuclear energy 20%, gold 18%, global defense 15%, excluding China and emerging markets at 14%, developed market small caps and value at 13%. In contrast, the S&P 500 gained only 2%, US Treasuries nearly flat, and large-cap US stocks declined by 3%. The traditional 60/40 portfolio’s return is just above 1%.

The issue is that positioning hasn’t caught up. The RIC team’s analysis of fund and ETF flows shows that over the past decade, “expansion assets” have seen a cumulative inflow of about $300 billion, compared to $1.6 trillion into “stagnant assets”: in other words, the trades are no longer secret, but allocation remains scarce.

This explains why the report repeatedly emphasizes: investors are still overweight on the winners of the past two decades (large-cap tech, high-grade bonds), while “the scarcity of credible returns” is changing.

The retreat of “unknown corners”: old debts of leverage, liquidity, and transparency

The report groups SPACs, cryptocurrencies, and private credit together: amid a decline in listed company supply (the number of US listed companies halved over the past 30 years), combined with ample liquidity and scarce growth, capital is flowing into the more “unknown” corners; the recent downturn starting in Q3 2025 has made old risks expensive again.

It presents some stark comparisons:

• The 2025 US SPAC deal volume reached $37.6 billion, the third-largest year on record; but the average return after mergers “is not worth the risk.” A “top-tier publicly traded SPAC” index has gained only 9% over five years, significantly underperforming small-cap US stocks (+41%). The report also cites studies indicating SPACs raise about $3 in fees for every $10 raised.
• Valuation discussions around Bitcoin remain unresolved (no cash flows, unclear utility, no long-term “store of value” history), with annualized volatility often exceeding 100%.
• Exit restrictions on private credit are bluntly described: with quarterly redemption limits of 5%, full exit could take five years; meanwhile, exposure of BDCs and private credit to the software sector (18%) exceeds that of bank loans (12%) and high-yield bonds (2%). Over the past 12 months, a “private credit-exposed” BDC/fund index fell 16%, while CLO ETFs, syndicated loans, and high-yield ETFs returned 5-8%.

The report concludes with two lessons: leverage + illiquidity + opacity form an unstable combination; uncompensated risks hurt most — so valuation always matters.