Bank of America Sees S&P 500 Falling 6% in 12 Months as AI and War Collide
Updated
Updated · Business Insider · May 18
Bank of America Sees S&P 500 Falling 6% in 12 Months as AI and War Collide
2 articles · Updated · Business Insider · May 18
Bank of America’s equity strategists forecast a negative 6% total return for the S&P 500 over the next 12 months, arguing current earnings-growth expectations are too high for the backdrop.
The bank said an unprecedented mix of shocks is clouding the outlook: AI is lifting productivity and GDP, while the Iran war, tariffs and restrictive immigration policy are pressuring oil, inflation and stability.
BofA also flagged demand-side distortions from heavy AI capital spending, tax cuts in the One Big Beautiful Bill Act and World Cup-related consumer spending that could mask underlying weakness until later this summer.
That mix has created what the bank called a “crucible of confusion” for investors, with market narratives already swinging from stagflation to reflation and policy uncertainty heightened by incoming Fed Chair Kevin Warsh.
Despite the bearish index call, BofA said specialized REITs, metals and mining, interactive media services, healthcare providers, entertainment and banks still offer opportunities on valuation, earnings revisions and momentum.
With markets hitting new highs amid dire forecasts, what alternative investments offer real protection from this 'crucible of confusion'?
How can the new Fed chair stabilize the economy when traditional monetary policy tools are failing against these unprecedented shocks?
Will AI's productivity boom conquer the stagflationary threats from ongoing global conflicts and restrictive trade policies?
S&P 500 Faces 2026 Crossroads: BofA Flags Valuation Risks, AI Market Bubble, and Geopolitical Headwinds
Overview
Bank of America has taken a notably cautious and out-of-consensus stance on the S&P 500 for 2026, despite the index’s strong gains of over 20% in both 2023 and 2024. While recent market growth was driven by multiple expansion, BofA believes that future performance will depend more on earnings growth. However, they see another year of stellar returns as unlikely, as the market faces evolving economic dynamics and structural shifts. This cautious outlook is shaped by the interplay between earnings per share and valuation changes, suggesting investors should prepare for a more challenging environment ahead.