The stock market rally is far from over, according to Bank of America Securities equity and quantitative strategy team.
In a research note released to reporters on Monday, team head Savita Subramanian issued a 6,666 year-end target for the S&P 500 in 2025. The call comes in as the third highest among strategists tracked by Yahoo Finance and represents a roughly 10.5% gain from current levels.
Part of the reason for the bullishness is expectations for strong economic growth. Some equities are set to benefit more than others, according to the note.
“We see more opportunities in stocks than the index,” Subramanian wrote. “In particular, we like companies with healthy cash return prospects and a tether to the US economy: large cap Value stocks.”
Bank of America’s economics team projects the US economy will grow at annualized rate of 2.4% in 2025, higher than Bloomberg consensus of 2%. That has led the equity team to favor “GDP sensitive companies.” On a sector basis the team is overweight Financials (XLF), Consumer Discretionary (XLY), Materials (XLB), Real Estate (XLRE) and Utilities (XLU).
At large, Subramanian’s team is calling for a broadening out of the stock market rally from the “Magnificent Seven” tech stocks — Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) —to the other 493 members of the S&P 500. BofA believes the S&P 500 equal weight index (^SPXEW) , which isn’t over influenced by moves of the largest stocks in the index like its counterpart cap-weighted index (^GSPC), will outperform in 2025.
“Euphoria around mega-cap Tech is evident in growth expectations for the Magnificent 7 approaching all-time highs, just when their earnings are slated to decelerate and the average company’s earnings are slated to accelerate,” Subramanian wrote.
This falls in a line with a call from RBC Capital Markets head of US equity strategy Lori Calvasina, who sees the S&P 500 hitting 6,600 at the end of next year. And it’s in a similar vein to Goldman Sachs’ projection for the S&P 500 to hit 6,500 in 2025 amid “narrowing” Big Tech outperformance.
“For Value to outperform, in recent years we’ve needed to see GDP run a bit hotter [than the consensus of 2%]” said Calvasina, who sees GDP in a range of 2.1% to 3% in 2025. “We’ve given an edge to the broadening of market leadership or the shift into Value [versus the Magnificent 7], but think it’s a close call.”
