Bank of America Global Research has increased its year-end target for the S&P 500 index from 5,000 to 5,400, indicating an approximate 5% upside from current levels. This adjustment aligns with similar forecasts by peers Barclays, UBS, and Goldman Sachs, all predicting the index to finish the year in the range of 5,200 to 5,400.
The U.S. stock market achieved record highs on Friday, propelled by a rally in technology stocks driven by sustained enthusiasm for artificial intelligence and supported by declining Treasury yields.
Bank of America’s upwardly revised target reflects its belief that the risk premium to equities is likely to decrease, given the expectations of higher and more predictable earnings this year. The brokerage points to factors such as the index’s reduced debt since the 1980s, lower earnings-per-share volatility, and a shift toward asset-light companies as contributing to its bullish outlook.
Savita Subramanian, Chief U.S. Equity Strategist at BofA, notes the potential for improved margin stability as companies transition from global cost arbitrage and free capital-driven growth to efficiency/productivity.
While acknowledging ongoing themes such as artificial intelligence and GLP-1 category weight-loss drugs driving market sentiments, Subramanian anticipates a broader market impact beyond these trends. She also highlights the continued potential for passive inflows to drive momentum in U.S. mega-cap stocks.
The strategist suggests a 5% market pullback in 2024, citing historical patterns of such moves occurring three times a year. Additionally, she notes that 10% corrections typically occur once per year. Subramanian anticipates a year-end rally once uncertainties surrounding the outcome of presidential elections are resolved.