The revival of the US manufacturing sector will be a big boost to the stock market, says BofA strategist

• The US manufacturing sector is poised for recovery in 2025, according to Bank of America.

• That’s a positive for the S&P 500, which gets a high percentage of its earnings from the sector.

• The bank predicted that production activity could expand as early as April this year.

America production sector is poised to increase this year, a development that could provide a boost to the broader stock market, according to Bank of America Securities strategist Ohsung Kwon.

Speaking to CNBC on Thursday, Kwon issued an upbeat outlook for stocks, pointing to a potential catalyst for stocks in the U.S. manufacturing space.

Manufacturing activity declined in 2024, and for most of the past two years, according to the Institute for Supply Management.

But the sector is expected to see a recovery, Kwon said, which he thinks could accelerate earnings growth and boost stock prices.

“The reason it’s so important for stocks is that half of earnings for S&P 500 it is related to the production cycle. It was the longest decline in production in history,” he added.

In a December note, Bank of America strategists said they expected the Purchasing Managers’ Index, a measure of manufacturing activity, to start rising in April this year. Strategists pointed to positive indicators in the sector, such as improving optimism among small businesses and industrial companies that reported having orders on the books for 2025.

Donald Trump’s second term in office is also expected stimulate production. It is expected that the new administration will promote policies that will support activities in the sector, while reshoring— the practice of companies bringing their production back to the US — is also likely to increase over the next four years, the bank added.

“At best, I think it will be a big boost to earnings [the] average inventory and I think that will be the main driver of market expansion,” Kwon said, although he predicted “more juice” in cyclical areas of the market, such as financials, consumer discretionary stocks and material stocks.

Bank of America remains bullish on stocks, even though strategists expect lower returns this year compared to 2024. The bank predicts S&P 500 will end the year at 6,666, implying a 14% increase over current benchmark index levels.

Read the original article at Business Insider