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BofA lifts S&P 500 2023-end target by 7%, led by 'old economy' stocks

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The S&P 500 is up 15.7% so far this year, largely driven by a rally in a handful of mega-cap growth stocks such as Nvidia and Meta that have ridden the artificial intelligence (AI) boom. While the rally has been moderating, BofA remains in 'neutral' to 'positive' territory on U.S. stocks, with a bias towards equal-weighted stocks, strategists led by Savita Subramanian said. An equal-weight index assigns uniform weights to each constituent, unlike a market capitalization-based index, like the S&P 500, where bigger companies tend to have an outsized influence.

September 20, 2023 at 11:19 a.m.A trader looks at a screen showing the Dow Jones Industrial Average on the trading floor at the New York Stock Exchange in Manhattan, New York City

The Wall Street brokerage now expects the index to end the year at 4,600 points, higher than its previous estimate of 4,300 and 3.5% higher than its close of 4,443.95 on Tuesday. While the rally has been moderating, BofA remains in "neutral" to "positive" territory on U.S. stocks, with a bias towards equal-weighted stocks, strategists led by Savita Subramanian said.

While a "fresh wave of bear narratives around equities have emerged", BofA says the "old economy", which includes value stocks - more prevalent in the equal-weighted S&P 500 - could benefit as much as tech and growth.Moreover, not only have equal-weighted stocks "almost always" beat mega-cap stocks in the past nine recovery cycles, but they could help mitigate duration risks when up against safer assets such as bonds, Subramanian noted.

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