Bank of America Merrill Lynch’s Top 10 Gray Swans for 2026: Uranium prices soar 50%... England surprisingly wins the World Cup?

Bank of America Merrill Lynch’s Top 10 Gray Swans for 2026: Uranium prices soar 50%... England surprisingly wins the World Cup?

When the market’s consensus expectations often become synonymous with mediocrity, real excess returns are always hidden out of most people’s sight.

According to Wind Chaser Trading Desk, Bank of America Merrill Lynch strategist Jared Woodard and his team in their latest annual heavyweight report “Ten Surprises for 2026,” listed ten highly impactful yet severely underestimated “contrarian” scenarios by the market.

The report points out that hard data may refute recession arguments, with U.S. economic growth potentially reaching 2.6%, benefiting cyclical assets; the dollar may enter a turning point, weakening to favor value stocks, cyclical sectors, and commodities;

In terms of U.S. stock sectors, BofA predicts that uranium prices may soar over 50% to $130/lb, bringing major opportunities to the nuclear energy sector; U.S. equal-weighted indexes may outperform large-cap stocks, and there is significant room for valuation recovery in small- and mid-cap stocks; emerging market bonds could become the best risk-adjusted return assets.

Hard Data Refutes Recession, Dollar May See Change

Prediction 1: U.S. Economic Growth at 2.6%

BofA Merrill Lynch economists are optimistic about the U.S. economy in 2026, forecasting real GDP growth of 2.6%, significantly higher than the market consensus of 2.1%. The GDP surprise may come from quicker regulatory easing, more Fed rate cuts, tariff rebate checks, and higher corporate investment amidst rising productivity.

Hard data supports this optimistic outlook:

U.S. trade deficit narrowed to $29 billion, the lowest since 2009Number of new businesses in Q4 reached a record 517,000, an all-time high and a highly relevant indicator for future productivity growthIn December, the number of corporate earnings upgrades exceeded downgrades, with the global EPS revision ratio hitting a four-year high

Overall, hard data indicators rose to +0.4 standard deviations (the highest since April 2022), while soft data sentiment indicators remain low at -0.8 standard deviations.

Prediction 2: A Weaker Dollar Triggers Global FX "Rebalancing"

Global policymakers are correcting decades-long record imbalances in capital and commodity flows. The dollar, weakening from its strongest level since 1985, may mark a shift toward a more balanced global economy.

Bank of America Merrill Lynch FX strategists expect the RMB’s appreciation trend to continue, with a year-end target of 6.8 (currently 7.0). In the long term, the RMB may appreciate even more: senior domestic economic advisors have recently signaled support for a stronger currency to boost domestic consumption and balance imports/exports; a former central banker mentioned the correct exchange rate could be 5 or even 4 RMB to 1 USD.

U.S. Stock “Power Shift” and Nuclear Renaissance

Prediction 3: Equal-weighted U.S. Stock Index Outperforms the Market

In the past decade, the equal-weighted S&P 500 only beat the market-cap-weighted index in two years (2016 and 2021). Since ChatGPT’s launch in 2022, the market-cap weighted index has returned 78%, nearly double the equal-weighted (40%). In 2025, investors sold off equal-weighted ETFs.

Why 2026 could turn around:

Broad market EPS growth is catching up to the “Magnificent Seven”Non-tech sector capital expenditures may expandClarity in tax/trade policy releases corporate investmentOnshoring accelerates

Long-term, the equal-weighted S&P 500 is over 1 standard deviation cheaper than the market-weighted, with implied annualized returns of +6% versus -1% for the S&P 500.

Prediction 4: Uranium Prices Soar Over 50% to Record Highs

Uranium and nuclear power stocks have rebounded 168% from the April 2025 lows, with increasing global public policy support.

Reasons for bullishness strengthen:

BofA Merrill Lynch metals strategists forecast uranium prices to reach $130/lb in Q4 2026, $135/lb in 2027; supply-demand imbalance is the main driverAsian supply disruptions or competition from data center builders could cause price overshootingStock analysts have raised target prices for miners, utilities, and reactor companies, noting utilities will need to replenish uranium supplies in H2 2026Policy: Nuclear power appears to be a U.S. government strategic priority; $2.7 billion was recently approved to support domestic uranium enrichment

From current prices, BofA Merrill Lynch predicts a 58% uranium price increase.

Prediction 5: Unmanned Military Systems Drive Defense Sector Upgrades

Global defense spending surged in 2025, but investors worry whether earnings will follow given the Q3 2025 rebound did not last.

The rising importance of unmanned military systems:

High-profile use in the Red Sea and Russia-Ukraine conflicts highlights legacy systems' vulnerability and the cost issue of confronting cheap drones ($20,000) with costly traditional defense (like $2.1 million missiles)Conflicts may spread beyond Europe, the Middle East, and Africa, possibly accelerating upgrade timelines for outdated equipment, software, and infrastructureCountries like Sweden, Australia, Japan, and India have announced new investments in drones and countermeasures

America’s new national security strategy emphasizes that “the huge gap between low-cost drones & missiles shown in recent conflicts and the costly systems required for defense exposes our need for change and adaptation.”

New Territory for Yields: Emerging Markets & CLOs

Prediction 6: Emerging Market Bonds Become World’s Best Asset

According to BofA Merrill Lynch, local emerging market bonds have an expected return of 11%, with moderate historical drawdowns, and may be the best major asset worldwide in 2026 after risk adjustment.

Optimistic fundamentals:

U.S. and global interest rate expectations down; BofA Merrill expects EM short rates down 70 bps, with rate cuts in all regionsGovernment & corporate balance sheets are more robust; EM corporate default rate is 2.1%, well below the historical average of 3.5%Latin America’s earnings revision ratio is at the highest since 2024

Structurally under-allocated: EM bonds make up 0–3% of many U.S. household fixed-income portfolios but over 20% of global external debt.

Prediction 7: Default Rates Drop, CLO ETFs May Outperform Treasuries

After high-profile bankruptcies like First Brands and Tricolor, some investors plan to avoid credit markets this year, worried about tight spreads in investment-grade and high-yield bonds and default cycle risk.

Reality is more optimistic:

Senior loan default rates have recently dropped from 4.7% to 3.4%Fed rate cuts this year could ease financial conditions for borrowers, support liquidity, and keep economic activity robust

Against this backdrop, Collateralized Loan Obligation (CLO) ETFs could be a more attractive source of yield than long-term government bonds. CLO ETF demand was strong in 2025 (inflows of $12 billion); BofA strategists expect continued demand from U.S. and Japanese banks. AAA-tranche ETF yields top 5%, with extremely low credit risk and zero duration.

Prediction 8: ETF Assets Overtake G7 Market Caps (ex-USA)

Global ETF assets under management grew 32% in 2025 to a record $18.4 trillion. The prior year grew by 29%.

If this trend continues, by year-end 2026, ETF assets will exceed the current market capitalization of the G7 countries (excluding the U.S.) at $24 trillion.

ETF products have far surpassed stock index funds, expanding into factor indices, option strategies, systematics, and alpha-seeking models. Actively managed equity ETFs have grown significantly, with 2025 net inflows up 48%.

Prediction 9: Ample Liquidity Makes 2026 a Big Year for CEF Issuance

Demand for new Closed-End Funds (CEFs) over the past four years was the lowest this century (except for the global financial crisis).

2026 may see a turnaround:

Ample liquidityLoose financial conditionsFinancial deregulationCEF valuations are now at moderate levels

Potential breakthroughs may be based on the current demand for alternative assets, credit, and CLOs, plus recent success in hedge fund strategies. Based on the average net positive issuance years since 1987, a successful year could mean $1.1 billion or more in new CEFs issued.

Prediction 10: England Wins the World Cup

Currently, Kalshi prediction markets rate Spain as most likely to win (16.1%), followed by England (13%), France (10%), Brazil (10%), and Argentina (defending champion, 9.9%).

England last won the World Cup in 1966. This time may end “sixty years of pain.” England had a perfect showing in the qualifiers, with eight wins and no goals conceded—the only UEFA team to do so.

This tournament will be jointly hosted by 11 U.S. cities, 3 Mexican cities, and 2 Canadian cities—the first time a World Cup has been hosted by three countries together.

2025 Predictions Review

Bank of America Merrill Lynch reviewed its top ten forecasts for 2025:

  • S&P 500: Third Straight Year with >20% Return: Actual total return was 17.9%, quite close
  • Tariffs Act, Trade Rebalance: Net exports reached the highest since 2021; trade deficit at the lowest since 2009
  • Investment Unlocked: Corporate investment was strong, but not due to those catalysts
  • AI Models Exhaust Human-Created Training Data: No signs yet of exhausting human-created data
  • Treasury ETFs: >10-year duration treasury ETFs saw $168 million outflows
  • Eurozone Escapes Zero Debt/Energy: European countries increased defense spending, Germany suspended the debt brake
  • Yen & QQQ: Yen nearly flat (-0.29%), QQQ up +21%
  • Alternative Investment Demand: Retail private credit fundraising hit new record highs, CLO ETF inflows reached $21 billion
  • Submarine Cable Cut: On Dec. 31, Finnish navy seized a vessel suspected of cutting an undersea cable
  • Grid Vulnerability: Spain saw a blackout, but losses below the $600 billion forecast

 

    

 

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