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Investing.com -- Bank of America raised its S&P 500 year-end target to 6,300 from 5,600, citing the resilience of U.S. corporations despite persistent macroeconomic uncertainty.
In a note Tuesday, the bank’s analysts wrote, “It’s dangerous to underestimate Corporate America,” and admitted, “Mea culpa for ignoring our own advice (above) on Liberation Day.”
The firm also introduced a 12-month target of 6,600, saying a lower equity risk premium (ERP) assumption now offsets the headwinds from elevated sovereign yields.
“The resiliency of large public companies in the face of macro uncertainty leads us to lower our equity risk premium (ERP) assumption,” BofA said.
While acknowledging that “policy uncertainty is near all-time highs and sovereign yields are at multi-decade highs,” BofA believes the outlook is brighter for equities than bonds.
“Price return is only half the story – dividends are likely to contribute more from here,” the analysts wrote. “Aging demographics and sticky inflation create a compelling supply/demand case for inflation-proof income and easily favors stocks over bonds.”
In the near term, BofA noted that momentum could slow, saying the S&P 500’s run “into Q3” lacks an obvious catalyst. “Negative guidance and revisions in April/May have improved to average levels but economic surprises have broken down,” it said.
However, looking further ahead, BofA is more constructive: “Deregulation and a pick-up in business investment could buoy markets ahead of mid-term elections.”
Even with modest long-term price returns projected from today’s elevated multiples, BofA remains bullish. “Corporate transparency has remained intact,” the analysts concluded, adding that since COVID, “corporates either adapted or dropped out of the index.”