There is still significant upside potential in the stock market, Bank of America says.
The bank said the S&P 500 could rise 25% next year based on a bullish indicator.
BofA’s Savita Subramanian said: “Analyst consensus suggests that long-term growth prospects will take a big hit today.
of S&P 500 Based on a stock market indicator that measures sentiment among Wall Street analysts, it could rise more than 25% over the next 12 months, according to a Friday note. Bank of America Savita Subraniyagna.
Subramanian noted that long-term earnings growth expectations among Wall Street analysts are at record lows, reflecting widespread pessimism. Typically, when there is great pessimism about future corporate profits, the stock market delivers spectacular returns.
“Valuation is a very powerful long-term forecasting tool, but sentiment is more predictive of near-term returns, and analysts today agree on long-term growth expectations and indicate large gains,” said Subramanian. From 2022, long-term growth has fallen; [and] It sits near the lows of the covid.
Wall Street currently expects long-term returns for the S&P 500 to grow by about 7%, which is roughly the same level as in March 2020 and March 2009, the two periods in which stocks posted their biggest gains next year.
Analysts expect the S&P 500 to post 11% long-term dividend growth a year ago, while the 5-year growth rate is 12%.
Just as low long-term profit estimates among Wall Street analysts proved to be a big indicator for stocks, higher growth estimates proved to be a sign for stocks.
“Low long-term growth [expectations] He has become a bully. In fact, in November 2021, given the strong inverse relationship between long-term growth and S&P 500 returns, we referred to higher expectations as a bearish set,” Subramanian said. The stock market entered a year-long bear market. A few months later.
As suggested by this contrarian indicator, analysts are leading the way for a massive stock market setup to expect higher earnings growth across all sectors, including energy. But the Suranian language does not agree.
“Energy companies have a newfound supply discipline. Oil supply is generally limited,” argued Subramanian, which oil companies can explore. No drop in fuel prices.
And there are reasons to believe that profit growth could beat analysts’ expectations going forward, according to the note. including a renewed corporate focus on efficiency; “It is bullish to maintain the margin.”
“Capex is strong, and if telecom services grow even 2x as fast, incremental grid/infrastructure spending is necessary and should benefit power, steel, utilities and retail (sticky wage growth),” Subramanian said.
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