Bank of America has issued a new S&P 500 forecast, projecting the benchmark index will reach 7,800 over the next 12 months.
The new target implies about 2% upside from current levels despite growing concerns over inflation, interest rates, and market valuations.
The updated S&P 500 outlook was published by Bank of America strategist Savita Subramanian on September 14. At the same time, the bank raised its year-end 2026 target to 7,400 from 7,100.
The forecast comes as the S&P 500 trades near 7,600, roughly 3% below its record high of 7,816 reached in August.
The index remains up about 10% year-to-date despite recent weakness in technology stocks and rising market volatility.
While the banking giant remains constructive on the long-term direction of U.S. equities, it expects gains to be modest over the coming year.
According to Subramanian, the market appears overdue for a correction after experiencing only one 5% pullback in 2026, compared to an average of three such declines in a typical year.
The strategist noted that roughly half of Bank of America’s bear-market indicators have already been triggered.
The bank also highlighted several risks facing investors, including persistent inflation pressures, Federal Reserve policy uncertainty, corporate earnings quality, and tightening credit conditions.
Notably, Bank of America argued that current equity valuations assume a much lower inflation environment than its economists expect.
The strategist drew comparisons with the 1970s, when elevated inflation, a weaker U.S. dollar, and aggressive monetary tightening contributed to a prolonged stock market decline.
Impact of Federal Reserve decision
The latest S&P 500 forecast comes as investors prepare for this week’s Federal Reserve decision.
Markets are pricing in a high probability of a 25-basis-point interest rate increase at the September 16 Federal Open Market Committee meeting.
Expectations for tighter monetary policy have intensified following sticky inflation data, surging oil prices, and the recent rise in Treasury yields toward 5%.
Higher energy costs have added to inflation concerns after crude oil prices climbed above $100 per barrel, while weakness across semiconductor and artificial intelligence-related stocks has weighed on broader market sentiment.
Despite these headwinds, corporate earnings growth has remained resilient, helping support the S&P 500’s gains this year.
Although Bank of America expects near-term volatility, the firm maintains a positive long-term outlook for U.S. stocks.
The bank forecasts S&P 500 earnings growth of 33% in 2026, followed by an additional 12% increase in 2027.
It believes productivity gains driven by artificial intelligence and automation will continue to support corporate profitability as companies increasingly replace labor-intensive processes with scalable technologies.
From a positioning standpoint, Bank of America favors large-cap value stocks, select small- and mid-cap opportunities, and the equal-weighted S&P 500 index over the traditional market-cap-weighted benchmark.
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