Investing.com -- Bank of America maintained its year-end target for the S&P 500 at 7,100, representing a 5% decline from current levels, with projections across its models ranging from approximately 6,000 to 8,000.

The bank stated that the equity supply and demand dynamics that peaked in 2025 are now reversing. Liquidity that previously came from easy central bank policies, rising earnings, growing buybacks, investor inflows, US government inflows and increased take-private activity is no longer supporting markets at the same levels.

Bank of America's house view now anticipates three 25 basis point Federal Reserve rate hikes in 2026, reflecting persistent inflation and tighter labor markets across major US sectors. The bank's rates team expects a flatter yield curve, which historically has been unfavorable for the S&P 500.

The bank projects oil prices could average $70 to $80 per barrel in the second half of the year, down from approximately $90 per barrel in the first half, citing potential full opening of the Strait of Hormuz and possible supply surplus.

Bank of America recommends investors favor large cap value stocks, particularly cyclical manufacturing sectors that generate cash flow, rather than secular growth companies that need to raise capital. The bank noted that capital allocated to artificial intelligence spending has limited major technology companies' ability to reduce expenditures without falling behind in the AI competition.

The bank said buybacks at large technology firms are constrained by weakening cash flow, which has separated from strong earnings that have been boosted by investment income. Cash returns are strongest in financial, energy and materials sectors and weakest in hyperscalers and consumer discretionary companies, according to the bank.