Bank of America has raised its year-end S&P 500 target to 7,400 from 7,100 while introducing a 12-month forecast of 7,800, reflecting expectations for limited gains in US equities despite projected earnings growth.
The revised year-end target implies approximately 3% downside from current market levels, while the 12-month projection represents potential upside of about 2%.
Strategist Savita Subramanian said in a note this week that investors could encounter a more favourable entry point following a market pullback.
She noted that US equities have experienced only one correction of at least 5% this year, occurring in March, compared with an average of three in a typical year. Approximately half of the bank’s bear-market indicators have also been triggered.
BofA identified several risks to its outlook, including inflation, Federal Reserve interest-rate policy, corporate earnings quality and credit conditions.
Subramanian highlighted a difference between current equity valuations and the bank’s inflation projections, noting that the market’s price-to-earnings multiple implies substantially lower inflation than BofA anticipates.
The strategist also drew a historical comparison with the 1970s, when inflation risks, a weaker US dollar and Federal Reserve rate increases accompanied a stock market decline of more than 40%.
Regarding the US midterm elections, Subramanian downplayed the potential impact of a Democratic sweep on capital expenditure, arguing that state governments are largely driving investment in artificial intelligence infrastructure.
Her longer-term outlook for equities remains positive, supported by expectations that companies will achieve productivity gains by replacing labour with scalable business processes.
BofA projects S&P 500 earnings growth of 33% in 2026 and 12% in 2027, although its index targets suggest that higher corporate earnings may not translate into equivalent gains in share prices over the forecast period.
The bank’s equity preferences include large-cap value stocks, selected opportunities among small- and mid-cap companies and the equal-weighted S&P 500 rather than the market-capitalisation-weighted benchmark.
The forecasts reflect BofA’s expectation of a potential near-term pullback followed by limited gains over the next 12 months, alongside continued earnings expansion.
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