Boosted Market Projections
The BoFA Securities equities team projects a 5% gain in the S&P 500 by the year-end, anticipating a pullback followed by a late rally.
Revised Price Target
Strategist Savita Subramanian and her team have increased their price target on the S&P 500 to 5,400 from 5,000.
Shift in Conviction
Subramanian acknowledged a shift in their bullish stance since the publication of the 2024 Outlook, attributing it to a rise in positive sentiment across Wall Street. She noted that the Sell Side Indicator, a key sentiment gauge, now indicates increased equity allocations, prompting a lowering of its significance in their analysis. However, despite a neutral call, the overall market timing outlook remains positive.
Multiple Scenarios
In a bearish scenario, the team envisions a decline in the S&P to 4,100, driven by lower real rates, economic weakness, a higher ERP, and normalized earnings of $225.
In a bullish scenario, they foresee a surge to 6,500, supported by slightly lower real rates, an ERP reminiscent of the 80s/90s, and normalized earnings of $260 based on mid-2023 trough earnings growing at an 8% trend rate.
Market Timing
Subramanian pointed out historical data, citing that on average since 1929, 5% pullbacks occur three times a year, and 10% corrections happen once per year. With no significant drop in the past four months, she highlighted observations from the Chief US Technician noting bearish divergences in the market.
Volatility and Uncertainty
Additionally, she mentioned the VIX, which has increased by 25% from the second quarter to November of previous presidential election years. However, post-election day returns tend to be positive due to the elimination of uncertainty.