5 reasons why S&P 500 is likely to trade at 5,000 by end of 2024 - BofA's quants

November 21, 2023 7:45 AM EST
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The S&P 500 Index is expected to hit a record 5,000 points by the end of 2024, according to Bank of America’s strategists led by Savita Subramanian.

The strategists express confidence that markets have surpassed "maximum macro uncertainty," citing the absorption of significant geopolitical shocks. In the note, released on Tuesday, Subramanian says the “market has absorbed significant geopolitical shocks already and the good news is we’re talking about the bad news.”

While the strategists are not optimistic about the Federal Reserve cutting rates, they acknowledge the central bank's accomplishments, highlighting that companies have adapted to the new regime of higher rates and inflation.

“We’re bullish not because we expect the Fed to cut, but because of what the Fed has accomplished,” the quant strategist added.

The bullish call is supported by a bottom-up BofA survey suggesting a Goldilocks scenario, the likelihood of earnings per share accelerating even if economic growth slows down, and a positive historical trend in election years.

“We maintain a cyclical bias, raise Communication Svcs to marketweight and lower Info Tech to underweight but still see US Tech & TMT as long-term secular winners.”

Subramanian listed 5 reasons why the S&P 500 is likely to end 2024 higher:

1) Lack of conviction among bears – “Bull markets typically end with high conviction and euphoria – we are far from that”;

2) Bottom-up BofA analyst survey reads goldilocks – BofA's bottom-up analyst survey indicates a "goldilocks" scenario for 2024, with expectations for decelerating but not declining prices, higher margins, offsetting wage inflation with efficiency gains, and falling costs in other areas;

3) S&P 500 EPS is seen rising next year – “We forecast $235 (+6% YoY) in 2024 EPS despite slowing GDP”;

4) Election years have been positive for equities – “Volatility could rise in the 2H, similar to prior election years”; and

5) US exceptionalism is intact – “The US began to wean itself off of China in 2018, and reshoring has been cited as a tailwind by companies. Higher oil has boosted EPS and US energy security is a major advantage. The USD reserve currency status gives the US more latitude to address its deficit vs other regions. Baby boomers with ~$80T net worth are benefitting from higher rates and the wealth transfer to millennials has begun,” Subramanian concluded.

By Senad Karaahmetovic

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