Bank of America Says If Something Breaks the Economy, It’ll Happen This Summer: How Investors Can Play It

The stock market has had a volatile run thus far in 2025, and more may be in store ahead. The primary reason for this is that investors hate uncertainty.

Stock market investments are based on the future value of current assets. In the current market environment, too many variables are unknown and/or constantly changing. That’s not the type of situation in which you want to bet your whole bankroll. Thus, the market is susceptible to big swings based on even passing headlines.

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The experts at Bank of America know that investors are thirsting for some type of concrete answer as to where the markets are headed, but even they have no crystal ball. Here are the two scenarios they see as the most plausible for the year ahead, and the reasons why any break in the market — for better or worse — is likely to come this summer.

The market is likely at an inflection point due to a number of factors pulling it in different directions. Although the economy has been surprisingly resilient, interest rates remain stubbornly high, and many market participants are hoping for one or more Federate Reserve (Fed) rate cuts before the end of the year.

Fed rate cuts provide a tailwind to the economy and spur its growth engine, reducing the chance that it falls into a recession. As this translates to increased corporate earnings, stock prices generally rally.

The flip side of that coin is that a growing economy can also overheat to the point that it pushes inflation higher. Higher inflation reduces corporate profits and typically results in higher interest rates, constricting the economy further. That’s usually a bad scenario for stock prices.

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The fly in the ointment in 2025 is the Donald Trump administration’s tariff policy, which many experts view as inflationary. If tariffs do translate to higher prices for American consumers, the Fed is highly unlikely to cut interest rates any time soon, and may even raise them if inflation rises sharply.

But the final status of the tariff policy is far from certain, as the Trump administration has continually made broad, market-moving proclamations and then rolled them back. Whether or not that will ultimately be a successful strategy is an additional unknown, making investors wary of where to place their bets.

Analysts at Bank of America have outlined two potential scenarios for the market and the economy in the second half of 2025.