Trust Wall Street to always be max bearish at the lows and to capitulate back to bullish just as stocks break out to the upside.
Take Bank of America, whose chief equity strategist, Savita Subramanian (never to be confused with the inimmitable Chief Investment Strategist, Michael Hartnett, a kind of Strategist-At-Large who gets to say what he really thinks not what the C-Suite wants said), today published a note in which finally capitulated on her previous bearishness (last summer she was the most bearish Wall Street strategist) and said that BofA is "raising its S&P 500 2023 year-end target from 4000 to 4300 based on five indicators yielding a range from 3900 (Fair Value) to 4600 (Sentiment)." Here are the details:
In our forecast framework we incorporate five signals: (1) fair value, (2) sentiment/positioning, (3) central bank impact, (4) long-term valuation and (5) price momentum. For (1) we shift our cost of equity assumptions to incorporate a higher real interest rate of 2% (l-t average back to the 1950s) and a lower equity risk premium consistent with higher quality constituents, inflationary pressures partially offset by productivity gains and pricing power. For (1) and (4) we update normalized earnings to use a longer look-back period for log-linear trendline earnings (1936-now vs. 1977-now). We thus avoid doubling down on a falling rate environment and incorporate that the benchmark is longer duration but also higher quality