Investing.com -- Bank of America (BofA) introduced a 2025 year-end price target of 6666, a figure which, if achieved, would mark an extraordinary tenfold rally from the market lows of 2009. The new target also implies an 11% upside potential from current levels.
“The only constant is change and as we look to 2025, volatility is likely to reappear, presenting opportunities to buy the S&P 500 at lower levels,” strategists led by Savita Subramanian said in a note. “But by year-end, the market likely closes higher than today's level.”
BofA favors individual stocks over the index, and is particularly bullish on sectors such as Financials, Discretionary, Materials, Real Estate, and Utilities.
“In particular, we like companies with healthy cash return prospects and a tether to the US economy,” strategists noted.
BofA draws parallels between today's market conditions and past economic periods, pointing out similarities to the mid-1980s efficiency era and the late 90s to early 2000s. The firm observes that a few large, expensive stocks currently comprise a significant portion of the index, mirroring the previous eras.
Despite this concentration, BofA sees greater potential in the average stock, especially large-cap Value stocks with robust cash return prospects.
In terms of earnings, strategists forecast a 13% year-over-year increase in 2025 earnings per share (EPS) to $275, aligning with consensus estimates. This growth is expected to stem from a recovery in manufacturing and a broadening of earnings across companies.
The bank projects that by the fourth quarter of 2025, a record-high 96% of companies will experience EPS growth.
BofA also discussed the potential impact of a Trump 2.0 presidency, outlining both positive and negative outcomes.
The analysis suggests a balanced range of possibilities, with higher tariffs potentially offset by increased re-shoring investments, and corporate tax cuts potentially counterbalanced by the benefits passed through to consumers.
Meanwhile, tighter immigration and wage inflation that could emerge under Trump’s second term “could hurt corporate margins and stymie Fed cuts,” strategists said, while wage growth is seen as a positive for discretionary spending.
On small caps, Subramanian and her team emphasize that while the group has rallied post-election, it faces significant risks from tariffs and immigration reform. Refinancing pressures have increased with fewer rate cuts expected, and small caps remain in a profits recession, with recovery timelines continually pushed out.
As such, strategists prefer mid-cap stocks for their stronger fundamentals and lower policy risk, though they see some selective opportunities in small caps.