When Skunks Gather: Bank of America’s Forecast for S&P 500’s Trajectory

Analysts, such as Savita Subramanian from Bank of America, are working hard on their forecasts just like Santa’s helpers. Subramanian, an expert in equities and quantitative strategy, predicts that the S&P 500 will reach a record-breaking level of 5,000 by the year 2024. This prediction sets the stage for favorable conditions in choosing stocks selectively.

Subramanian and her team give several justifications for what seems to be the most positive forecast for the upcoming year so far. On Wednesday, Lori Calvasina from RBC Capital likewise presented a year-end target price of 5,000 for the S&P 500.

Bank of America has stated that investors have reached a stage where there is no more uncertainty about the economy and significant geopolitical events. Furthermore, the bank highlights that the positive aspect is that they are currently addressing negative news.

The Bank of America team clarifies that their optimistic view does not rely on the Federal Reserve reducing interest rates, but instead on the Federal Reserve’s accomplishments. They are convinced that companies have adapted to the higher interest rates and inflation, which they normally do.

Subramanian and Co. seem to have a more positive outlook than their colleague, strategist Michael Hartnett. Hartnett has warned against investors rushing into stocks based on the belief that the Federal Reserve will ease monetary policy and the economic transition will be seamless.

What makes Subramanian deserving of your attention? Her forecast for the S&P 500 in 2023, at 4,600, appears to be reliable, unlike the more cautious predictions made by her colleagues on Wall Street. Although the round number of 5,000 is attractive, even if there is a 10% rise from its current level next year, it may not be as significant as the index’s impressive gain of over 18% in 2024, thus far.

Are there additional factors that could lead to a substantial rise in stock prices going forward? The presence of many individuals with negative intentions is one such factor, as mentioned. Despite the overall positive market sentiment, the data indicates that many investors lack trust in stocks, except for those who are bullish on artificial intelligence.

She claims that pension equity weights in the English language are currently at their lowest level in 25 years. The sell-side market targets set by banks and brokerages are mostly failing to achieve their goals. The consensus on long-term earnings growth for the S&P 500 is also at a low point, excluding the impact of COVID. Additionally, active funds are closely tracking their benchmarks. She further mentions that bull markets typically end with high confidence and excitement, which is not the case currently.

BlackRock recently voiced worry regarding clients retaining $4 trillion in cash, partially attributed to apprehension surrounding interest rates.

The strategist provides more explanations. She cites a survey done by analysts from Bank of America, who have optimistic projections for 2024. These projections encompass enhanced profit margins, lowered expenses, gradual price decreases without a substantial drop, and more. The strategist also considers historical data, noting that profits usually rise even when economic growth decelerates. This was evident in the 1950s when earnings per share declined for six consecutive quarters before the recession, but then increased during that economic downturn.

One of the reasons is that 2024 is an election year, and historically, elections have had a positive effect on the stock market. Moreover, there might be a bipartisan agreement to maintain defense spending and boost domestic manufacturing, which generally leads to economic advantages. Nevertheless, the potential implementation of fiscal austerity measures could have an adverse impact on healthcare stocks.

Another point to consider is that the United States has been actively working towards reducing its reliance on global markets since 2018, a situation that has benefited companies. Moreover, the rise in oil prices has had a positive effect on the earnings per share (EPS), and the United States is in a favorable position as it generates a significant portion of its own energy.

Subramanian emphasizes the significance of expressing appreciation to individuals born between 1946 and 1964 as they are inclined to share their wealth. She notes that baby boomers, who possess a combined net worth of around $80 trillion, are currently benefiting from favorable economic conditions and have begun the process of passing down their fortunes to the millennial generation.

She claims that this particular group of people holds approximately half of the total value of homes in the United States, and they have managed to obtain extremely favorable mortgage rates. Consequently, their current mortgage rates are even lower than the rates prior to the COVID outbreak.

Hence, the main concern is how to make the most of this positive attitude. To address this, she recommends that customers stick with cyclical stocks as they help boost the value of telecommunications companies. Nevertheless, Bank of America maintains a positive outlook on U.S. technology and the technology, media, and telecommunications sector in the future.