Bank of America strategist Savita Subramanian increased her year-end S&P 500 target to 7,400 from 7,100. This new target, however, still implies a roughly 3% downside from current levels, reflecting the bank's cautious near-term view despite the raised full-year forecast. Subramanian also set a 12-month target of 7,800, suggesting about 2% upside from current levels.
Subramanian warned that the stock market is entering a "seasonally weak period" and is overdue for a correction. She noted that the S&P 500 has experienced only one 5% pullback this year, compared to an average of three annually. A correction of at least 10% typically occurs once a year, with the last one in spring 2025. Approximately half of Bank of America's bear-market warning indicators have been triggered.
The bank highlighted that current price-to-earnings multiples imply an inflation rate of 1.7%, significantly lower than Bank of America's forecast of 3.2% for 2026. This disparity, coupled with tightening liquidity and slowing share buybacks, suggests a challenging period ahead for equities. Risks cited include inflation, Federal Reserve policy, earnings quality, and the credit environment. In early trading, Nasdaq-100 futures fell by as much as 1.8%, while the SPDR S&P 500 ETF (SPY) dropped up to 0.80%.
Despite the near-term concerns, Bank of America maintained a long-term bullish view, citing potential productivity gains from AI as companies replace labor with processes. They expect S&P 500 earnings to grow 33% in 2026 and 12% in 2027, favoring large-cap value stocks and the equal-weighted S&P 500 index. Other banks have higher S&P 500 targets, with Barclays at 7,950, HSBC at 8,100, and Fundstrat's Tom Lee at 8,000.
