Slowdown, recession or boom? Bank of America reveals the global stocks to play each eventuality

Published Thu, May 18 20237:18 PM EDT

Bank of America has named a number of European stocks that are expected to perform well across three economic phases. The investment bank screened for stocks based on their ability to withstand fluctuations in a slowdown, recession, and boom. "Our Style Cycle model ... remains in the 'Slowdown' phase but is near the crossing line of the next phase," wrote Paulina Strzelinska, quant strategist at Bank of America in a note to clients on May 17. "Historically, the 'Recession' phase is the typical successor of the 'Slowdown' phase, but a 'Boom' phase has also followed 'Slowdown' in the past." A slowdown is when economic growth softens without stopping. Under this scenario, Bank of America screened for stocks that are "high quality, [large] size, growth-over-value, rising momentum and low risk". The bank described a recession as negative growth for two consecutive quarters, leading to job losses and reduced consumer spending. For this scenario, Bank of America looked for stocks it defined as high quality, large, value-over-growth, and low risk. On the other hand, a boom is when there's rapid economic expansion with increased production, employment opportunities, and overall wealth. For this eventuality, the Wall Street bank identified stocks it considers value-over-growth, rising momentum, high risk, small market cap, and low quality. The table below shows stocks ranked under these scenarios: The list includes Infineon Technologies , STMicroelectronics , SSE , Swatch Group , Dassault Aviation , HSBC Holdings , Coca-Cola HBC , and Siemens , among others. According to Bank of America, these companies currently trade at a 28% discount compared to their average prices over the past decade – the biggest such discount since 2020. According to the bank's strategist, the bank's European Composite Macro Indicator index is still showing signs of slowing down but is nearing the point where it may cross into recession or boom, which would impact these chosen stock performances. "A change in the European bond yield has been the main driver of moving out of the 'Slowdown' phase into the next one in 7 out of 11 historical episodes," said Strzelinska. However, the bank said that some sectors, like industrials and discretionary, have improved due to increased demand from China's reopening economy and easing supply chain bottlenecks.