Bim
The BoFA Securities equities team sees another 5% gain in the broader market by the end of the year, with a pullback and a late rally.
Strategist Savita Subramanian and team boosted their price target on the S&P 500 (SP500) (NYSEARCA:SPY) (IVV) (VOO) to 5,400 from 5,000.
“But our bullish conviction has cooled since publishing our 2024 Outlook amid improving sentiment across Wall Street,” Subramanian wrote in a note Sunday. “The Sell Side Indicator, our key sentiment gauge, has seen increasing equity allocations and is now firmly neutral (see SSI) and we lower its weight in our framework. But a neutral call is rarely correct, and the net message of our market timing framework is still, in one word, UP.”
Their realistic bear case is a drop in the S&P to 4,100 amid a scenario of “lower real rates (1.0%) on economic weakness with a higher ERP (450bp) and normalized earnings of $225.”
Their realistic bull case is a rally to 6,500 with “lightly lower real rates (1.5%) and an ERP of the 80s/90s (2.5%), yielding a real cost of capital below 4ppt. Normalized earnings of $260 based on trough earnings in mid-2023 grown at trend 8% growth.”
“On average since 1929, 5% pullbacks have occurred 3x/yr and 10% corrections have occurred once per year,” Subramanian said. “We are due after four months with no meaningful drop, and our Chief US Technician sees bearish divergences.”
“Also, the VIX (VIX) has increased by 25% from Q2 to November of prior presidential election years. But post election day, returns have generally been positive from the removal of uncertainty.”