Bank of America sees the S&P 500 rising to 5,000 next year, anticipates a 'stock picker's paradise'

Published Tue, Nov 21 20236:46 AM EST

Bank of America has high hopes for stocks in the new year. Savita Subramanian, the bank's head of U.S. equity and quantitative strategy, wrote Tuesday she sees the S & P 500 ending 2024 at 5,000. That would be an all-time high for the broader market index, and it represents upside of 10% from Monday's close. "We are past maximum macro uncertainty," wrote Subramanian. "The market has absorbed significant geopolitical shocks already and the good news is we're talking about the bad news. Macro signals are muddled, but idiosyncratic alpha increased this year." Stocks have been riding high recently. The S & P 500 on Friday posted a three-week winning streak — its longest run since this past summer. For the month, the benchmark has surged 8.4%. That would be its biggest monthly increase since July 2022. Those gains come as hope grows that the Federal Reserve is done raising rates. Some investors are also expecting rate cuts sometime next year. .SPX 1M mountain SPX in the past month "We're bullish not because we expect the Fed to cut, but because of what the Fed has accomplished," Subramanian added. The strategist also noted other reasons she's bullish heading into 2024, including: Expectations of S & P 500 earnings rising more than 6% year over year. Election years "tend to be positive for equities." Low conviction from bears: "Pension equity weights are at 25-yr lows, sell-side market targets are mostly underwater, consensus long-term earnings growth for the S & P 500 is at its lows (ex. COVID), and active funds are hugging their benchmarks. Bull markets typically end with high conviction and euphoria – we are far from that." How to play it She anticipates a "stock picker's paradise" as certain companies separate themselves from the pack. "Companies have adapted (as they are wont to do) to higher rates and inflation," she wrote. The strategist says bet on cyclical stocks next year. She rates consumer discretionary, financials, real estate and energy sectors as overweight. She lowered the technology sector to underweight for the near term but said keep betting on U.S. tech for the long term. Subramanian has a 2023 year-end forecast of 4,600, about 1% from where it is now.