BofA gave the most restrained forecast for the S&P 500 for 2026. What alarmed analysts

Bank of America analysts predict that the S&P 500 will end next year at around 7,100 points - only 4% above the current level, despite the bank's expected double-digit growth in corporate profits. Meanwhile, other major investment houses, including Deutsche Bank, Morgan Stanley and Goldman Sachs, expect the index to grow more substantially - between 9% and 17%.

The U.S. stock market in 2026 is unlikely to show a powerful surge after a three-year period of double-digit growth, which lifted company valuations to very high levels, follows from the analysis of Bank of America, writes Bloomberg. The bank predicts the S&P 500 Index will trade around 7,100 points by the end of next December - about 4% above its closing level on Wednesday, Dec. 3. It has added 16% this year after rising at least 23% in each of the previous two.

BofA expects that companies in the U.S. will show double-digit increase in profits, but the growth of quotations will remain moderate. Savita Subramanian, head of strategy for the U.S. equity market, believes that there are not enough drivers for a rapid rally.

Despite the fact that the current situation with a narrow circle of market leaders and inflated multiples is reminiscent of the period before the dot-com bubble burst, the strategist does not expect a repeat of this scenario. But the market, according to her, may still face an "air pocket" in the AI segment: technology giants have not yet started to get a noticeable return on their large-scale investments.

The persistence of those costs and uncertainty about future U.S. Federal Reserve policy are making investors nervous and cautious about the outlook, especially since the S&P 500 already trades at a P/E multiple of about 22 - 19% above its long-term average, indicating expensive valuations, Bloomberg notes.

Subramanian assumes that liquidity in the market, which is now at peak levels, will decline further. Companies will buy back less of their own shares and invest more in development, and central banks are unlikely to move to additional easing. The Fed, in her opinion, will cut rates only if economic growth slows down significantly.

Nevertheless, the BofA strategist admits a positive scenario: in case of a strong growth of corporate profits, the index may rise to 8500 points, which is about 24% higher than the current level. The pessimistic scenario is a decline to 5500 points, which means a drop of about 20% if the AI effect and macroeconomic stimulus are weaker than expected.

Forecasts from other major banks look more optimistic, all of which mean the market could grow for the fourth straight year, with most analysts again expecting double-digit growth.

- Deutsche Bank's Binky Chadha expects the broad market index to climb to 8,000 points next year, suggesting a potential upside of 16.7% from current levels.

- An estimate by Mike Wilson of Morgan Stanley suggests that the S&P 500 will reach 7,800 points by the end of 2026, a gain of 13.8%.

- JPMorgan and Goldman Sachs calculations - 7,500 and 7,600 points - imply increases of 9.4 percent and 10.9 percent, respectively.

BlackRock, just like Bank of America, does not see the current AI boom as a bubble. However, while BofA emphasizes the risks of an "air pocket" in which investment has so far outpaced monetization, BlackRock stresses that the AI cycle is built on real corporate spending, profits, and productivity growth. The company notes the unprecedented scale of the investment cycle - so large that it has already become a macro factor in its own right, capable of keeping U.S. economic growth above its long-term trend, Yahoo Finance points out.

This article was AI-translated and verified by a human editor