Bank of America has raised its 12-month target for the S&P 500 to 7,200, implying an 8% gain from current levels.
“We mark our 12-month return models to market, shift to positive on our EPS Surprise indicator, yielding a 12-month return target of 8% – solidly average,” BofA analysts said.
The bank said its outlook “harkens back to the 80s/90s: productivity (it’s happening, even without AI) and business investment.”
According to BofA, easier monetary policy is boosting rate-sensitive sectors while goods and services spending is normalizing, a trend that is “better for the S&P than GDP.”
BofA added that “operating leverage, efficiency, cooling wage inflation and cost-cuts from de-regulation are profits-positive.”
While tariffs remain a headwind, the bank noted that “consumers and small suppliers have mostly shouldered the pain, and companies are still running through stockpiled inventory.”
Megacap performance may soften, but BofA sees opportunities in other sectors. “Megacaps are slowing – they’re really big, which eventually matters, and have higher capex to cash flow … capital raising and derating are imminent if AI monetization disappoints,” the analysts said. Instead, the “AI train should shift to energy, tooling up … and burgeoning use cases.”
Executives also appear more optimistic. “CEOs who skew conservative – they’re paid on positive surprises – look almost giddy: the S&P 500 EPS guidance ratio is higher than since the COVID re-open,” BofA said.
Despite valuations being “expensive on 19/20 metrics,” BofA argued that “stocks anticipate earnings: if we’re right about EPS, the S&P 500 should trade rich.”
Source :
https://www.investing.com/news/stock-market-news/bofa-sees-sp-500-trading-at-7200-in-12-months-4260325
