Wall Street's economic mood is shifting, and Bank of America just made one of the more bullish calls on the table. The bank thinks U.S. growth in 2026 could blow past expectations — and arrive much sooner than investors are pricing in.

Why BofA Expects Growth to Surprise

According to Bank of America economist Aditya Bhave, the firm's 2026 GDP forecast sits at 2.8%, meaningfully higher than the roughly 2.1% consensus floating around the market. But the real kicker isn't just the growth rate — it's the timing.

Bhave expects the expansion to be front-loaded, with the strongest momentum hitting in the first half of the year. A big reason? The One Big Beautiful Bill Act, which Bank of America estimates will deliver somewhere between $135 billion and $140 billion in consumer stimulus right during tax season. That works out to more than $1,000 per household on average, mostly landing between February and April when tax refunds typically arrive.

"We now project that consumer stimulus from the OBBBA will be much more front-loaded into tax season," Bhave noted, which prompted the bank to lift its first-half outlook while dialing back expectations for the latter half of the year.

Consumers and Jobs Are Still Holding Firm

Recent economic data back up the optimism. The unemployment rate dropped to 4.4% in December, suggesting labor supply constraints might be tightening faster than the Federal Reserve expected. Meanwhile, November retail sales came in right on target, with the control group climbing 0.4% — a sign that consumers are still spending despite elevated interest rates.

Bhave points out that while job growth has slowed, what's happening in the labor market is increasingly a supply-side story. That dynamic gives the Fed room to stay patient without slamming the brakes on growth.

On the inflation front, Bank of America sees core PCE ending 2026 at 3.0% year over year, slightly above earlier projections. Recent CPI and PPI prints came in softer than expected, but Bhave cautions that core PCE may run hotter than core CPI in the months ahead. Still, with the real policy rate likely already in accommodative territory, the overall policy setup remains supportive of growth.

Additional Tailwinds Building

Beyond fiscal stimulus and accommodative monetary policy, Bank of America highlights a few more factors that could keep the economy humming: ongoing AI-driven investment, improving productivity trends, and a more predictable trade policy environment regardless of how Supreme Court rulings on tariffs shake out.

"AI-related investment should continue to grow at a solid pace next year, despite already-elevated levels," Bhave said.

He added that "risks to our projections are tilted to the upside," and noted that "a 3-handle on 2026 growth wouldn't be a big surprise."

Small Caps Could Be the Big Winners

If the economic outlook continues to firm up and growth stays front-loaded, small-cap stocks might be in a sweet spot. The Russell 2000, tracked by the iShares Russell 2000 ETF (IWM), has already hit fresh record highs, climbing more than 7% year-to-date and handily outperforming the S&P 500, which has been essentially flat.

Analysts note that stronger U.S. growth typically translates into faster and sharper earnings revisions for small-cap companies. Why? They have greater domestic exposure and higher operating leverage compared to their large-cap peers. If macro data keeps surprising to the upside, small and mid-sized stocks could remain prime beneficiaries of this improving economic story throughout the year.