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The S&P 500 just notched its best quarter since 2020 and is up about 9% so far this year, but it\u2019s mostly downhill from here, according to Bank of America.<\/p>\n
In a note on Tuesday, analysts reaffirmed their year-end price target of 7,100 for the broad market index, representing a 5% drop from the week\u2019s closing level.<\/p>\n
\u201cOur bear market signposts suggest speculation is hitting extreme levels as high multiple stocks have gapped up demonstrably, an event that has historically preceded a valuation\u00a0\u2018snapback,’\u201d BofA said.<\/p>\n
The bank added that S&P 500 companies are generating less free cash flow relative to net income compared to historical trends. That\u2019s as so-called hyperscalers have seen their\u00a0free cash flow plunge due to massive spending on the AI boom, eroding their earnings.<\/p>\n
At the same time, the Federal Reserve is fighting sticky inflation after more than five years of letting it run above its 2% target. BofA recently predicted the Fed has now run out of patience and will hike rates three times this year to finally rein in inflation.<\/p>\n
To be sure, the S&P 500 generally saw positive returns during previous tightening cycles, as stocks peaked six to 12 months after the first rate hike.<\/p>\n
But Fed rate hikes now would hit differently, BofA explained, because the S&P 500 is more expensive ahead of\u00a0a\u00a0first rate hike than any other\u00a0cycle, except for the one that ran from 1999 to 2000.<\/p>\n
Chip stocks in particular have been on astronomical runs lately as the unrelenting AI boom sends demand soaring. Micron Technology, for example, is up 242% so far in 2026 and up 700% from a year ago, even after a recent selloff.<\/p>\n
That\u2019s fueled worries that the good times may be coming to an end soon. After hitting an all-time high of 7,621 just a month ago, the S&P 500 has gone on wild swings, losing about 2% in the process.<\/p>\n
Elsewhere, stocks have been on even worse stomach-churning rollercoasters. South Korea\u2019s high-flying Kospi stock index, which is dominated by AI darlings\u00a0SK\u00a0Hynix, and\u00a0Samsung, set a new record a few weeks ago only to suffer its fifth worst daily plunge ever days later.<\/p>\n
Such moves are especially worrisome for Capital Economics, which pointed out that similar selloffs have previously only happened during bear markets like during the Asian financial crisis, the dot-com bubble, and the Great Financial Crisis.<\/p>\n
\u201cThis volatility is, in our view, evidence of excessive froth and calls into the question the sustainability of this rally,\u201d\u00a0analysts said.<\/p>\n
Even a mostly\u00a0bullish outlook from JPMorgan\u00a0last month came with a \u201cflash crash\u201d warning. Still, analysts raised their year-end S&P 500 target to 7,800 from 7,600, citing strong earnings estimates.<\/p>\n
The forecast assumes the Fed holds rate steady this year, then raises next year, while the market\u2019s top gainers will remain highly concentrated in AI stocks.<\/p>\n
\u201cThat said, the path higher is likely to be non-linear given a tougher bar into 2Q earnings, crowded Momentum positioning (especially Low- Quality and Speculative Growth segments) that continues to face high probability of a flash-crash, rapidly increasing equity supply, and potentially tighter monetary policy that could constrain equity multiples,\u201d JPMorgan wrote.<\/p>\n
Others on Wall Street are more bullish. Yardeni Research President Ed Yardeni, who has been beating the drum about another Roaring Twenties since the decade began, hiked his year-end target for the S&P 500 to 8,250 from 7,700 in May.<\/p>\n
He cited strong corporate earnings and expectations that they will remain robust. Yardeni backed his view over the weekend and dismissed comparisons between today\u2019s AI boom and the dot-com bubble.<\/p>\n
\u201cThe late 1990s meltup was led by the forward P\/E of the S&P 500 Information Technology sector,\u201d he wrote on Saturday. \u201cIt was driven by FOMO (fear of missing out). The current bull market is driven by FEMO (fabulous earnings momentum).\u201d<\/p>\n<\/div>\n
#Stock #market #outlook #lose #gains #speculation #hitting #extreme #levels<\/p>\n","protected":false},"excerpt":{"rendered":"
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