Bank of America: Global Equity Valuations Detached from Earnings Fundamentals Amid AI Boom, Citing WTO Entry Parallel

According to Bank of America Securities, on May 30, the bank's report highlighted a rare divergence between rising corporate earnings expectations and weakening macroeconomic fundamentals. The MSCI Global Index's 12-month forward EPS rose 9% over the past three months (annualized ~40%), while S&P 500 three-month EPS momentum hit 12%, a 40-year high. Meanwhile, global PMI declined to 50.5, a two-year low. About two-thirds of earnings upgrades stem from profit margin expansion, with European and global 12-month forward consensus margins reaching historical peaks of 13.9% and 11.4%, respectively.

Bank of America drew a parallel to China's 2001 WTO entry, which enabled over 1 billion workers to integrate into the global economy and lifted corporate profit margins from 5%–8% to 10%–12%. The bank noted markets are betting AI deployment will similarly compress white-collar wage leverage, driving structural margin expansion even absent macroeconomic acceleration. The bank identified five underestimated risks: macro slowdown, demand destruction from AI displacement, doubled large-model token costs year-to-date, delayed productivity gains, and potential political backlash from mass white-collar job losses.