BofA Market Outlook: BofA Global Research has upped its year-end target for the S&P 500 index to 5,400, marking a major revision from its earlier projection of 5,000 and suggesting an approximate 5 per cent upside from current levels.

The move aligns BofA with its industry counterparts like Barclays, UBS, and Goldman Sachs, all of whom foresee the index closing the year within the 5,200 to 5,400 range.

The optimism in the US stock market has been fuelled by record highs reached on Friday, propelled by a surge in technology stocks driven by the enduring enthusiasm for artificial intelligence, compounded by declining Treasury yields.

BofA's upward adjustment in its target reflects its belief that the risk premium associated with equities is likely to decrease, given the heightened expectation of higher and more predictable earnings in the current year.

The brokerage also cites several factors supporting its bullish stance, including the significant reduction in the index's debt since the 1980s, decreased earnings-per-share (EPS) volatility, and a shift towards asset-light companies.

Savita Subramanian, BofA's chief US equity strategist, emphasized the potential for enhanced margin stability as companies transition from global cost arbitrage and capital-driven growth to a focus on efficiency and productivity.

While acknowledging the continued influence of themes such as AI and weight-loss drugs in the GLP-1 category on market sentiment, Subramanian anticipates a broader market expansion beyond these trends.

Additionally, she highlighted the likelihood of passive inflows continuing to drive momentum in US mega-cap stocks.

In terms of market dynamics, Subramanian anticipates a 5 per cent pullback in 2024, a trend historically observed thrice annually, with 10 per cent corrections occurring once per year.

She also predicts a potential year-end rally once uncertainties surrounding the outcome of presidential elections are resolved, further buoying market sentiments.

BofA's revised outlook reflects a prevailing optimism in the US equity markets, driven by a confluence of factors including improving earnings outlook, reduced volatility, and broader market expansion, setting a bullish tone for investors as they navigate through the year ahead.

(With Reuters inputs)