Last night, Bank of America (BofA, NYSE: BAC) published an analysis report on S&P 500 that the US index will trade at 5,000 by the end of 2024, or around 10% increase from its current level at over 4,500. BofA cited that the market already absorbed geopolitical shocks in this year, but the possibility of rate cut next year could raise the index higher. However, the risk premium in tech stock could fall further, while many companies adapted to a higher rate environment. It will be a “paradise” for stock pickers for the following reasons.
1) The market bears or the sell-side lack of conviction, as the “bull markets typically end with high conviction & euphoria,” which BofA said now is still “far from that.”
2) Bottom-up BofA analyst survey reads “goldilocks,” with decelerating prices, higher margins, offsetting wage growth with efficiency gains, and falling costs.
3) S&P 500’s Earning Per Share (EPS) is seen rising next year, BofA forecast $235 (+6% YoY) EPS in 2024 despite slowing GDP.
4) Election years have been positive for equities. The market’s “Volatility could rise in the second half of 2024, similar to prior election years.”
5) US exceptionalism is intact, as “The US began to wean itself off of China in 2018, and re-shoring has been cited as a tailwind by companies. BofA noted that the higher oil has boosted EPS and US energy security is a major advantage”.
BofA also noted that the USD reserve currency status gives the US more latitude to address its deficit compared to other regions. Meanwhile, the Baby boomers generation with $80 trillion net worth are benefiting from higher rates, and the wealth transfer to millennials has begun.”
Furthermore, BofA gave Overweight (O/W) outlook on Energy, Discretionary, Financials, Real Estate sectors, as it sees more upside on these undervalued but resilience even under the current pressured conditions.
