BofA’s indicators see S&P 500 at 4800 by year-end after a strong H1 rally

Bank of America analysts weighed in on the after the index closed the first half of the year with gains of almost 16% – resulting in the best H1 since 2019. Historically, the 1H23 is the 12th best 1H of the year going back to 1928.

“This is potentially bad news for the bears: The SPX tends to continue its winning ways in 2H after a solid 1H,” BofA technical analysts said in a client note.

History shows that following an above-average 1H, the tends to be stronger in 2H and is up 77% of the time on an average return of 6.5% (8.3% median). According to BofA’s calculations, this would equate with SPX 4730 (SPX 4800) into year-end 2023.

“The SPX rallied over 10% in 1H 2023, which has happened 28 times going back to 1928. After a 10%+ gain for the SPX in 1H, the SPX has achieved another 10%+ rally in 2H 46% of the time. The only down year under this scenario was 1929, which means that the SPX is up for the year 96% of the time after rallying at least 10% in 1H,” the analysts added.

The broker’s equity strategists also noted the largest monthly increase in SSI (Sell Side Indicator) since November 2022. SSI is BofA’s contrarian sentiment model that tracks US sell-side strategists’ average recommended allocation to stocks.

“This month’s uptick in equity sentiment reflects the largest m/m increase since November 2022. BofA’s Global News Pulse, which quantifies sentiment in stock-related news, also points to improving sentiment,” BofA strategists wrote in a separate note.

Despite the surge in sentiment, it still remains just off of a six-year low.

“The SSI has hovered within 2ppt of a contrarian Buy signal for the past year, and the current SSI level indicates +16% price return over the next 12 months (S&P 500 at 4800 by year-end or 5200 in 12 months). Historically, when the SSI has been as low or lower, 12m forward S&P 500 returns were positive 95% of the time (vs. 81% overall) and the median 12m return was 22%,” the strategists concluded.