In their forecast for the coming year, published on Monday, the strategists at Bank of America (NYSE:BAC) Global Research predicted that the S&P 500 would not have moved significantly in the subsequent roughly 12 months.
Projection of Stock Prices, Including Bank of America Stock
Bank of America stock (NYSE:BAC) has recently been one of the most sought-after stocks on Zacks.com. As a result, consider some data that could influence the stock’s performance in the near term.
Shares of this country’s second-largest bank have returned +2.3% in the last month, outperforming the +1.8% move in the Zacks S&P 500 composite. Bank of America’s industry, Zacks Banks – Major Regional, has gained 3.3% over this time.
In light of the expectation that annual earnings per share for the S&P 500 will fall by 9% to $200 in 2019, equity analysts at BofA have set a year-end price target for the benchmark index of 4,000 for 2023. This represents a rise of less than 1% from Monday’s closing price of 3,963.94.
This earnings decline is approximately 15% lower than the most recent estimates. In the worst-case scenario envisioned by the bank, the S&P 500 might drop to a level as low as 3,000.
“One of the reasons we are more sanguine on earnings is the health of corporate and consumer balance sheets,” Savita Subramanian, head of U.S. equity strategy and quantitative strategy, told reporters on Monday. “One of the reasons we are more sanguine on earnings is the health of corporate and consumer balance sheets.”
As a result of wage increases that will outstrip companies’ ability to raise prices, profit margins will continue to decline, which is one reason why the bank is pessimistic about the near term. According to data conducted by BofA, only fifty percent of the companies in the S&P 500 are seeing real sales growth, and the underlying sales numbers are significantly lower than the inflation-boosted headline figures.
According to Subramanian, “the optimum climate to be an equity investor is when pricing power is growing faster than wages are rising and people are buying more items.” This describes a scenario in which people are purchasing more goods. “The current situation may be the most unfavorable [for equities investors] because salaries are stagnant and high, prices are falling, and demand is beginning to fade.”
According to Bank of America, “still-crowded mega-caps,” which have borne the brunt of 2022’s equities crisis, may hamper the advances of the bulk of companies in the index. These mega caps have borne the brunt of the equity crash. According to the findings of BofA, even without the S&P 500’s 50 most valuable names, the valuations of the remaining 450 remain consistent with historical norms.
Aside from the erosion of profitability, BofA identified the democratization of investment and the associated “wealth effect” as another significant danger for the market in the year ahead. This effect is expected to be visible in 2021-22. According to the wealth effect, consumers are expected to increase their spending, which is a behavioral economic phenomenon that occurs when the value of their assets increases.
According to the figures provided by BofA, almost $22 trillion has been lost in the financial markets this year, which has resulted in a knock of approximately $700 billion to the spending power of consumers.
According to the point of view of Bank of America, “Democratized investing in recent years could compound and broaden the negative impact” on the markets and the economy.
Subramanian observed that while 2022 was focused on the Federal Reserve, 2023 will be more concerned with the actual economy.
BofA is pessimistic about the immediate future of the stock market. Still, the company maintains an optimistic outlook for the long run and projects that the S&P 500 will return 8% per year over the next ten years. The company recommends that investors concentrate on the long run rather than the short race.
The bank estimated that the probability of a positive return on the index for an investor who holds it for a day is “just more than a coin flip,” which is equal to 54%.
According to Subramanian, equity investors should focus on the long game rather than the risks in the immediate term. “Play the long game.”
Featured Image: Unsplash @ Javier Haro