Bank of America (BofA) strategists believe that even though US equities are volatile this year, there is still an opportunity for long-term investors to usher in a silver lining.
Bank of America’s long-term valuation model shows that over the next 10 yearsS&P 500 IndexThe average annual price return of 6% is the highest since May 2020, and after adding the 2% dividend, the total return is estimated at 8%. Bank of America’s latest forecast represents a marked shift in its view of the market after previously predicting negative returns for the S&P 500 over the next 10 years.
“For long-term investors, valuations are important and this year’s bear market offers them an attractive opportunity,” said Savita Subramanian, Bank of America strategist.
However, BofA’s forecast is below the historical average. The average price return of the S&P 500 over the past 30 years is around 10%, according to data compiled by Bloomberg.
The Bank of America warned that the release of a warmer-than-expected consumer price index (CPI) a few days ago could force the Federal Reserve (Fed) to continue adhering to its aggressive policy of raising interest rates, raising short-term stock market volatility.
Subramanian said: “AlthoughS&P 500 IndexHaving fallen below the full-year target level of 3600, we expect market volatility to continue. He added that higher-than-expected inflation in the services sector reinforces the Fed’s hawkish stance, which in turn pushes up the discount rate, increasing the risk of a hard landing.
The bullish and bearish indicators of the BofA show that only 20% of the bear market indicators are currently activated.According to past experience, at least 80% of the indicators are usually activated before the market hits the low.
In addition, the Equity-Risk Premium tends to rise by at least 75 basis points before the market hits the low, but it hasn’t happened yet, which means that while investors eagerly await a capitulation of the shares US, long futures investors may need to prepare for greater market volatility and pain.
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