The 'discipline & courage' to be bullish when everyone else is bearish 🐂
BofA just raised its S&P 500 target, and it reminds me of a bold call they made in 2011 🤨
“The era of easy money is behind us, but that might be a good thing,” she wrote. “Over the past few decades we have enjoyed financially engineered growth: cheap financing, buybacks and cost cutting. Today, Corporate America has shifted focus to structural benefits — efficiency/automation/AI and have bought themselves time to adapt via long-dated fixed rate debt.”
Her new target is derived from a blend of five pricing models. It’s all a bit technical, and we’re not gonna get into the details here.
However, I do think the timing of this upward revision is pretty extraordinary. After all, we could be a few weeks away from financial catastrophe should Congress fail to lift the debt ceiling and and prompt the U.S. government to go into default on its debts. Just last Friday, UBS analysts laid out a scenario where the S&P 500 quickly plummets by “up to 30%” should the U.S. fail to meet its financial obligations.
“For the bear case, talk to the person next to you,” Subramanian wrote. “Geopolitics, Fed error, debt ceiling, financial crisis II, recession, ‘rich-cession,’ credit, stagflation, [commercial real estate], urban demise, civil unrest, rate cliffs, jobs etc. Stock v. bond allocations have plummeted to 2009 lows.“
The S&P 500 was trading at around 4,200 on Monday, so her target isn’t exactly a wildly bullish prediction. Nevertheless, her upward revision stands out as most other analysts have been standing pat with their targets.
Echoes of an epic 2011 call from BofA 🎯
Keep reading with a 7-day free trial
Subscribe to TKer by Sam Ro to keep reading this post and get 7 days of free access to the full post archives.