Another Wall Street strategy team is out with an optimistic projection on how far stocks will run this year.
In a note to clients on Sunday, Bank of America's US equity and quantitive strategy team led by Savita Subramanian boosted its year-end target for the S&P 500 (^GSPC) to 5,400 from 5,000. This projection along with a recent call from UBS are the most bullish predictions for the benchmark average this year among strategists tracked by Yahoo Finance.
"Bull markets end with euphoria — we're not there yet," Subramanian wrote. "Sentiment has improved, but areas of euphoria are limited (AI, GLP-1)."
BofA's move is the fifth boosted price target from strategists tracked by Yahoo Finance in the last month. The more optimistic outlooks come as stocks have ripped higher to start the year. The S&P 500 and Nasdaq Composite (^IXIC) just closed out their best February performances since 2015, supported by a second straight quarter of earnings growth and increased confidence in the trajectory of the US economy.
Subramanian noted that fourth quarter earnings grew 4% compared to the year prior, and analysts aren't cutting their forecasts for the current quarter at their normal rate. This comes as Bank of America's economics research team just boosted its outlook for growth this year too. That combination of an increased earnings outlook and a more bullish outlook for the US economy has been a common thread cited in the recent S&P 500 year-end target boosts across Wall Street.
Bank of America strategists don't expect the upward trajectory for stocks to be a straight line, though. Subramanian's team noted some type of pullback from current levels could be on the horizon. Since 1929, 5% pullbacks in the S&P 500 happen three times a year on average and typically one of those extends to a 10% correction, per Bank of America's research.
"We are due after four months with no meaningful drop," Subramanian wrote.
The team also highlighted that history shows volatility in stocks will pick up as the 2024 presidential election approaches, but that is usually "followed by a rally" as the uncertainty clears.
And when that end-of-year rally comes, Bank of America expects it to be driven by a broader group of equities than the tech stocks currently driving the S&P 500 higher.
"We expect leadership to broaden as the gap between earnings growth of the Magnificent 7 and the rest of the S&P 500 begin to narrow," Subramanian wrote.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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