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BofA’s bear-case scenario now sees the S&P 500 trading no lower than 3900 while the bull-case calls for 4600. The new targets are based on the framework that includes: 1) fair value, 2) sentiment/positioning, 3) central bank impact, 4) long-term valuation, and 5) price momentum.
“Easy earnings growth from cheap financing, buybacks, globalization and cost-cutting may be behind us, but efficiency gains could improve quality of earnings and offset margin risk from re-shoring,” the strategists said in a client note.
They also urged BofA’s clients to play the equal-weighted S&P 500 instead of the cap-weighted S&P 500 as the bank’s projections show 2x those of the cap-weighted index.
“We believe investors should ignore the snapshot multiple this target implies – a 21x multiple on 2023 EPS of $200E (tracking $210 after 1Q’s beat). 21x is elevated, but trough multiples have been higher (23x at COVID, 28x at GFC) and snapshot multiples are not particularly predictive,” they added.
The bull-case scenario is based on BofA’s Sell Side Indicator (SSI), which signals +16% returns over the next 12 months.
“The SSI has dropped 7ppt from its 2021 peak to 52.7%, just 1.3ppt shy of triggering a “Buy” signal. This level implies price returns of +16% over the next 12 months. Historically, when the SSI was at current levels or lower, subsequent 12-month S&P 500 returns were positive 94% of the time,” the strategists concluded.
