BofA predicted the S&P 500 to rise only another 1%: why doesn't he expect a further rally?

Bank of America raised its forecast for S&P 500 to 6300 points, but does not expect further growth of the index. Despite the rapid growth of the U.S. stock market, the potential for further movement from current levels, according to the investment bank, is limited due to the lack of economic drivers. Goldman Sachs also raised its forecast for the S&P 500 this week.

BofA strategist Savita Subramanian raised the S&P 500 Index's target level for the end of 2025 to 6,300 points from the previous 5,600, reported CNBC. That implies a rise of just 1.2 percent from Tuesday's closing level of 6,225.52 points.

"It's hard to name a driver that would allow the S&P 500 to continue its meteoric rise in the third quarter," Subramanian wrote in a note quoted by CNBC. - Of our five target price valuation models, the most relevant one, EPS Surprise (a valuation model based on the difference between expected earnings per share and actual reported earnings - Oninvest), gives mixed signals, at best."

Profit forecasts, which were negative in April and May, have already returned to average, but the latest economic data is rather disappointing, said the BofA analyst. And a key source of corporate profits - tech companies' earnings - is in danger of slowing, she said. Policy uncertainty remains close to its highest level despite trade deals, the passage of the "great and wonderful" bill and reduced recession risks, Subramanian wrote. On the other hand, business transparency remains high.

"Most companies continue to release earnings forecasts and the spread of estimates (an indicator of earnings per share uncertainty) is near its lowest levels since COVID," the analyst added.

Subramanian's new forecast is just above the consensus level of 6,243 points, according to CNBC's survey of market strategists. She previously had the lowest forecast in the market along with Evercore ISI's Julian Emanuel, the network noted. Wall Street analysts steadily raised their forecasts for the U.S. market as it rallied after slumping in April due to concerns over duties.

"America as a country is hardly unique, but corporate America may well be," Subramanian noted. 

On July 4, BofA analyst Michael Hartnett advised investors to start taking profits if the S&P 500 Index exceeds the 6,300-point mark. Before that, he warned of growing bubble risks amid the summer rally and the House of Representatives' approval of a $3.4 trillion budget package of tax cuts.

Goldman Sachs on Monday also raised expectations for U.S. market valuations: it predicted the broad market index would rise 3 percent over three months and 11 percent over a year, to 6,400 and 6,900 points, respectively. The six-month forecast was raised to 6600 points from 6100 points. Goldman maintained its benchmark for earnings per share growth on the S&P 500 index at 7% for 2025 and 2026. At the same time, the bank warned that the situation could both improve and worsen, and after the end of the reporting season for the second quarter, the forecast may be revised.

"Earlier and deeper Fed policy easing and lower bond yields relative to our previous forecasts, the continued fundamental strength of the largest companies, and investors' willingness to overlook likely near-term earnings declines support the revision of the P/E forecast for the S&P 500 to 22 from 20.4," Goldman said.

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