Bank of America Sets Optimistic S&P 500 Price Target for 2026

TLDR

• Bank of America raises its S&P 500 price target, forecasting a 12% gain over the next year, aiming for a level of 7,815.
• The updated forecast is based on the bank’s Sell Side Indicator, which tracks Wall Street’s equity allocations, signaling a positive outlook.
• Despite nearing cautionary levels, strategist positioning remains below the threshold typically associated with market peaks.
• Strong corporate earnings growth continues to drive market momentum, with over 80% of reporting companies beating profit expectations.
• Economic conditions, including 3.3% GDP growth and moderate inflation, support investor confidence and contribute to the market’s resilience.

Bank of America has increased its expectations for U.S. equities, signaling a potential further upside for the S&P 500. The bank’s revised forecast points to a possible 12% gain for the benchmark index over the next year. This optimistic outlook comes amid strong sentiment and supportive economic fundamentals.

Bank of America’s Optimistic S&P 500 Price Forecast

Bank of America predicts the S&P 500 could rise by approximately 12% over the next 12 months. The forecast implies the index will reach around 7,815, up from its current level of 6,974. The bank’s expectations are based on its closely monitored Sell Side Indicator, which tracks Wall Street’s equity allocations.

The Sell Side Indicator measures the average equity allocation recommended by strategists on Wall Street. In January, the indicator saw a slight increase, reaching its highest level since March 2025. While equity allocations have not surpassed last year’s peak, the signal remains bullish under Bank of America’s contrarian strategy.

Market Conditions Support Bank of America’s Forecast

Victoria Roloff, an analyst at Bank of America, stated that the market does not show the typical signs that precede a market peak. Despite strategist positioning nearing levels that would normally raise caution, it remains below the threshold typically seen at major market tops. She emphasized that conditions still favor further equity growth.

January’s market performance reflected this resilience, as the S&P 500 ended the month higher despite a pullback mid-month. That pullback was linked to geopolitical tensions, but the index recovered quickly. Bank of America attributes this to strong fundamentals, including steady corporate earnings growth and minimal downward revisions to profit expectations for 2026.

S&P 500 Earnings Growth Drives Market Momentum

Bank of America also highlights corporate earnings as a key driver of the market’s momentum. Earnings growth now accounts for about 84% of total S&P 500 returns this cycle. In comparison, earlier in the bull market, expanding price-to-earnings multiples played a larger role in driving equity prices higher.

The strong earnings performance is visible in the current reporting season, where over 80% of companies have surpassed profit expectations. Analysts now predict nearly 11% earnings growth for the December quarter, up from an earlier forecast of 7%. This robust corporate performance has shifted the market’s tone, with investors focusing more on earnings rather than speculation.

Economic conditions also support investor confidence. U.S. GDP growth is near 3.3%, inflation remains moderate, and productivity trends are improving. Despite delays due to a government shutdown, the market has largely brushed off disruptions, with the Dow Jones Industrial Average and Nasdaq Composite both showing gains.

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