Bank of America Merrill Lynch raised its forecast for the S&P 500 — but it did so because it believes over-optimism is taking hold, and the years-long market rally will end soon.
The firm's year-end target for the index is now 2,450, up from 2,300 previously. That makes BofAML's estimate the third-highest among 16 strategists surveyed by CNBC in early February.
"We are updating our models to reflect the increasing likelihood that we are entering a typical end-of-bull-market rally, where fundamentals take a back seat to sentiment and technicals," Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch, said in a Wednesday note.
"The stock market has always seen outsized returns leading up to its eventual crash, and we think this time will be no exception," she said.
Investor optimism reached a 30-year high, while certain technical indicators on the market indicate to some strategists that stocks are likely setting up for further gains. The S&P 500 traded at fresh record highs Wednesday.
On a fair-value basis, Subramanian estimates the S&P should be at 2,230, more than 130 points below Tuesday's close of 2,363. She pointed out that historically, the last two years of a bull market in stocks returned a minimum of 30 percent.
