BofA Global Research has revised its earnings outlook for the S&P 500, signaling optimism for the index’s performance.
On Tuesday, the firm announced an increase in its 2024 earnings per share (EPS) forecast for the S&P 500 companies, adjusting the projection to $250 from an earlier estimate of $235.
This adjustment reflects an anticipated 12% profit growth for the companies within the benchmark index this year.
The revision is underpinned by a belief that “2023 was a transition year for Corporate America, and companies have now adjusted to the new higher rate and tepid demand environment.”
A significant part of this optimistic forecast is the expected capital expenditure by leading technology firms, including Microsoft, Amazon, Alphabet, and META, which are projected to invest a combined total of $180 billion this year.
The investment in artificial intelligence (AI) is believed to initiate a “virtuous cycle,” benefiting not only the tech giants but also sectors like semiconductors, networking, electrification, utilities, and commodities due to increased power usage and the physical expansion of data centers.
BofA strategists, including Ohsung Kwon and Savita Subramanian, suggest that as technology companies embark on this investment cycle and traditional firms focus on cost-cutting, the growth disparities between tech and non-tech companies could diminish.
This convergence is expected to contribute positively to the overall growth and profitability of the S&P 500 companies.
Furthermore, BofA emphasizes the importance of demand recovery as a critical earnings driver through 2025, alongside further margin expansion.
The brokerage’s outlook is part of a broader consensus among major financial institutions regarding the performance of the S&P 500.
Earlier in March, BofA increased its target for the index to 5,400 points for the year, aligning with other predictions that forecast the index to finish 2024 in the 5,200 to 5,400 range.
This collective outlook reflects a growing confidence in the resilience and potential growth of the American corporate sector in response to the evolving economic landscape.