BofA Warns of Five Major Risks as Global Stocks Decouple from Fundamentals, AI Profit Hopes Fade

BofA Securities cautioned on May 31, 2026, that global equities face five significant risks that could puncture record-high valuations built on unproven AI profit expectations, even as economic fundamentals weaken. The MSCI World Index’s forward earnings per share surged 9% over three months—an annualized pace near 40%, the fastest since 2021—while global PMIs fell to a two-year low of 50.5. S&P 500 forward EPS revisions hit a 40-year high. BofA attributed two-thirds of the upgrades to margin optimism, with global forward profit margins reaching a record 11.4%. The bank likened AI’s structural potential to China’s 2001 WTO entry but warned of five hurdles: Hormuz Strait disruption (markets price a 34% chance of July 7 normalization), weak U.S. consumer income, AI-driven job losses risking a demand paradox, doubled AI token costs slowing adoption, a decade-long productivity lag, and political calls for windfall taxes. BofA maintained a negative view on European equities, forecasting a 10% drop in the STOXX 600 to 560 by end-Q3, as equity risk premiums hover near 20-year lows.