The rally in stocks in the first half of 2023 is supported by fundamentals and still has upside potential, according to one of Wall Street’s top strategists. In a note to clients on Sunday, Bank of America strategist Savita Subramanian raised his year-end price target for the S&P 500 to 4,300 from 4,000. The new target is around 2.6% above the level where the index closed on Friday. The S&P 500 is already up more than 9% year-to-date. .SPX YTD line The S&P 500 has gained more than 9% in 2023. The gain for stocks this year has come despite stubbornly high inflation and signs of a potential recession to come later in the year. However, Subramanian said investors should take note of structural changes at large companies, including the potential for artificial intelligence to improve efficiency. “The era of easy money is behind us, but this could be a good thing. Over the past decades, we have enjoyed financially engineered growth: cheap financing, buyouts and cost cutting,” wrote Subramanian. “Today Corporate America focused on structural benefits – efficiency/automation/AI and gave itself time to adapt via long-term fixed rate debt. The cyclicals of the old economy, capital-strapped since 2008, have become disciplined and self-sufficient, as evidenced by lower betas and more stable earnings.” These changes mean the stocks are not overvalued despite surprisingly high valuation multiples, Subramanian argued. “Current valuations are not low, but rarely are during earnings recessions. On cyclically-adjusted earnings, valuations argue for price returns of 5% per year for the S&P 500 over the next decade – better than the negative returns produced by valuation signals early last year,” Subramanian said. The new target puts Bank of America above the CNBC Market Strategist Survey average. highest target among major Wall Street firms is still CFRA’s Sam Stovall’s 4,575.- CNBC’s Michael Bloom contributed reporting.
