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BofA-ML raises year-end 2018 target for S&P 500
Strategists at Bank of America-Merrill Lynch revised their year-end target for the S&P 500 higher, telling clients that the "great rotation out of bonds into stocks" had yet to materialise, predicting corporations would use their tax windfall on slashing debt and M&A, as well as on share buy-backs and investment.
What's more, on a historical basis, shares still looked "cheap" to them - relative to bonds.
"While 2017 saw building optimism, 2018 may be the year of euphoria. While valuations have overshot fair value, sentiment is likely to be the most important driver of returns − typical of late-stage bull markets.
"[...] 5%+ pullbacks historically occur 3x/year; there may be an opportunity to buy the market 5-10% off its highs," they said.
Thus, the strategists upped their target from 2,800 points to 3,000 points on the back of an upwards revision to their forecast for the earnings per share for the average S&P 500 component , thanks to recent US tax reforms.
On a more cautious note, with 11 their 19 bear market signposts having already been triggered, the risk-adjusted reward profile of stocks was now less compelling, they conceded.
Furthermore, according to the results of BofA-ML's latest Fund Manager Survey, fund managers' cash positions had dwindled to a 5-year low of 4.4% of assets held.
Nonetheless, they noted "that since 1968, at least 80% of our signposts have been signaled ahead of prior market peaks."
As well, four of their five target models were pointing to further upside and readings such as on how much cash fund managers were still sitting on were not at extreme levels.
"But no need to panic yet - these indicators are still not at the extreme levels of bullishness that typically coincide with the end of bull markets."