BofA’s Subramanian Is Latest on Wall Street to Boost S&P 500 Target

(Bloomberg) — Bank of America Corp.’s Savita Subramanian is the latest equity strategist to ratchet up her target for the S&P 500 Index to among the highest on Wall Street after this year’s rally left forecasters blindsided.

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Subramanian now expects the benchmark to end the year at 5,400, compared with her earlier target of 5,000 — implying a gain of about 5% from Friday’s close. Indicators are flashing bullish signals on stronger earnings growth ahead and “surprising” profit margin resilience, she said.

“Bull markets end with euphoria — we’re not there yet,” Subramanian, the bank’s head of US equity and quantitative strategy, wrote in a note to clients on Sunday. “Sentiment has improved, but areas of euphoria are limited.”

BofA’s 5,400 price target for the S&P 500 in 2024 now ranks as one of the most bullish on Wall Street, according to about two dozen sell-side strategists tracked by Bloomberg. She joins the ranks of Ed Yardeni of Yardeni Research and Jonathan Golub of UBS Group AG, who both hold the same year-end outlook.

The artificial-intelligence frenzy has surprised Wall Street forecasters and spurred a race among strategists to keep up with a stock market rally that’s already blowing past their expectations. In recent weeks, Piper Sandler & Co., UBS and Barclays Plc have all boosted their targets. Goldman Sachs Group Inc. and UBS have both already raised their outlooks twice since December, following the Federal Reserve’s dovish policy shift.

The S&P 500 closed above the significant 5,100 milestone on Friday for the first time in history, with the index already beating the average year-end forecast of 4,899.40. Leading indicators argue for upside to BofA’s earnings-per-share forecast of $235, with the consensus’s $243 seeming like a “reasonable” expectation for stronger economic growth and higher profits, the firm’s strategists said.

The S&P 500 has climbed 7.7% to start the year after rising 24% in 2023. Fourth-quarter earnings season reaffirmed that corporate profits are improving. Out of the 98% of the benchmark’s market capitalization that have reported so far, 76% have beaten expectations.

Investors have broadly rewarded the stocks that beat on both profit and sales expectations, with those shares outperforming the benchmark by a median of 1.5% within a day of results, according to data compiled by Bloomberg Intelligence.

That said, Subramanian sees risk of a near-term pullback on growing bullish sentiment across Wall Street. Take the firm’s Sell Side Indicator, which tracks the average recommended allocation to stocks by US sell-side strategists. It edged higher last month, moving closer to flashing a contrarian “sell” signal than a “buy” for the first time since April 2022.

Read more: What to Remember If the Stock Market Takes a Dive

Piper Sandler’s Michael Kantrowitz, who had the most bearish US stock outlook on Wall Street in 2023, lifted his S&P 500 forecast to 5,250 last month. That surpasses calls from some of his bullish peers, including John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, and Thomas Lee, head of research at Fundstrat Global Advisors, who both see the S&P 500 hitting 5,200 by year-end.

Even Morgan Stanley’s Mike Wilson — among the most prominent bearish voices on Wall Street — is now expecting gains in the US equity market to broaden into less loved corners than the big tech companies that have dominated the rally so far. His 2024 target is still 4,500, implying a roughly 12% drop from Friday’s close.

While Subramanian argues that the S&P 500’s rally has remained concentrated by a handful of megacap shares, she expects leadership to broaden as the gap between earnings growth of the so-called Magnificent Seven stocks — Nvidia Corp., Microsoft Corp., Meta Platforms Inc., Inc., Apple Inc., Alphabet Inc. and Tesla Inc. — and the rest of the S&P 500 will begin to narrow.

Although Nvidia, Meta, Amazon and Microsoft exceeded earnings expectations, Tesla and Alphabet disappointed, while Apple flagged weakness in China. Investors are largely anticipating earnings due later this week for further clues on the health of the consumer, including results from Target Corp., Kroger Co., Gap Inc. and Foot Locker Inc.

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