Bank Of America Raises S&P 500 Price Target To 5,400, Warns Of Near-Term Pullback

Bank of America has raised its S&P 500 price target to 5,400, but not without a word of caution. The bank predicts a near-term pullback before the market resumes its rally.

What Happened: The bank’s analysts have revised their S&P 500 price target upwards to 5,400, marking a 5% increase from current levels, reported Business Insider. This new forecast represents a 13% gain for the entire year.

Despite the bullish forecast, analysts have warned investors to brace for a near-term pullback. They note that the stock market has not experienced a significant drop in four months, and historically, such dips are followed by a rally.

“Also, the 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,” they wrote.

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The bank’s analysts have also noted a decrease in their bullish conviction. This revised forecast is due to a weaker emphasis on its sell-side indicator and adjustments to its other measures.

One of the major reasons for the higher price target is the strength of earnings. The analysts believe that stocks may be in for positive surprises due to weak guidance on upcoming performance, likely caused by conservative estimates.

Why It Matters: The S&P 500 has been on a remarkable rally, particularly in the tech sector. A Goldman Sachs specialist recently attributed this rally to sustainable and enduring fundamentals.

However, not everyone is convinced of the sustainability of this rally. Torsten Sløk, chief economist at Apollo Global Management, has warned of an AI bubble, with the top 10 companies in the S&P 500 today having a higher forward price-to-earnings (P/E) ratio than the top 10 companies had in the mid-1990s during the tech bubble.

Similarly, Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School, has cautioned that the current enthusiasm for tech stocks, including Nvidia, might be a sign of an impending bubble.

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