Bank of America Predicts a Tepid 5% Rise for S&P 500 in 2026

Bank of America has set a modest target for the S&P 500 in 2026, expecting the benchmark index to creep up to 7,100 by year-end. That projection implies a roughly 5% gain from current levels, signaling a pause after the index's recent strong showings.

Savita Subramanian, the bank's equity and quant strategist, points to a shift in what's driving stock prices. While multiple expansion bolstered the market by about 15% this year, next year it will be all about earnings growth, which she forecasts to climb 14%. At the same time, a contraction in price-to-earnings (P/E) multiples by 10 points is expected to cap overall gains.

To put this in historical perspective, the S&P 500 stormed ahead by over 20% in both 2023 and 2024, followed by a roughly 15% jump in 2025. Compared to this blistering pace, a 5% advance would mark a clear slowdown, with the decade average gain sitting near 12% annually.

Subramanian doesn't stop at her base case. She outlines a bear scenario where the S&P 500 could drop to around 5,500, which would be a roughly 20% decline. This mirrors typical market behavior during a U.S. recession and serves as a stark contrast to the base forecast.

On the flip side, the strategist paints a bull case envisioning the index climbing all the way up to 8,500, a sharp roughly 25% increase beyond today's trading levels. This scenario depends on more optimistic earnings or perhaps a loosening of valuations.

The takeaway? While this forecast doesn't promise fireworks, the range of outcomes is quite broad. The market's next moves will depend heavily on corporate earnings performance juxtaposed with the mood of price multiples.

As the dust settles after a recent run-up, traders may find themselves facing a market less eager to sprint but still capable of surprising, either on the upside or downside.

Will the earnings engine rev enough to ignite a rally, or will shrinking multiples strangle any upside? Bank of America's call hangs in the balance.