BofA's 2026 S&P 500 Forecast Says Beware an AI 'Air Pocket' in StocksNEWS | 03 December 2025This story is available exclusively to Business Insider subscribers. Become an Insider and start reading now.
When it comes to making grand prognostications about the future of the market, it takes guts to stand out from the crowd.
If you're wrong, but your peers are as well, there's safety in numbers. But if you're out on a limb, and things don't go your way, there can be outsized attention paid to your failure.
This has resulted in a Wall Street stock-forecasting crowd that stays safely in a pack. There are always some exceptions, but for the most part, strategists stick together.
Luckily for us, Bank of America has entered the chat with an outlier view of sorts.
While the firm still expects the S&P 500 to finish above current levels, it sees only moderate gains, and its target is well below the other major banks. In today's AI-invigorated environment, being only slightly bullish counts as going against consensus.
As the chart below shows, BofA is the only major bank to expect single-digit S&P 500 upside in 2026.
Here's where it stacks up:
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What is it that makes BofA so much more conservative about US stock returns in 2026? For one, the firm notes that liquidity in the market right now is so maxed out that it can only go down from here. The strategists cite fewer buybacks, more capex spending, and fewer rate cuts as potential headwinds.
But the meat of BofA's more-bearish-than-most argument centers on what it describes as an "AI air pocket." It's meant to be a halfway point between a stable market and an all-out bubble.
There's the good: Equity sentiment not being at a bullish extreme, earnings growth that (largely) backs up valuations, and a lack of frothy IPO activity.
But there's also the bad: Hyperscalers have shifted to an asset-heavy model, and there's been a mountain of AI debt issuance without a firm monetization plan.
All of this leads to BofA suggesting that "de-rating may be warranted in the months ahead" — a view that's fueling a year-end S&P 500 price target of 7,100.
It's a risky call for sure. After all, the benchmark index was up more than 20% in both 2023 and 2024, and has exceeded a 15% annual return in five of the last six years.
But it's these types of calls that make forecasting season fun. And for that, we thank you, BofA.Author: Never Miss A Story. Enter Your Email. Joe Ciolli. Follow Authors. Source
