The S&P 500 and the SPDR S&P 500 ETF Trust (NYSE:SPY) have been on a tear since the stock market bottomed back in March. BofA Securities analyst Savita Subramanian said Thursday that investors should be prepared for the S&P 500 to give back some of those gains as it enters what could be a volatile final four months of 2020.
BofA's Year-End Projection: BofA has set a year-end S&P 500 target of 3,250, suggesting roughly 8.2% downside from current levels.
The somewhat bearish price target is based on a composite of five models and is in part a reflection of the large number of potential near-term bearish catalysts that could impact the market, the analyst said.
They include the November U.S. election, policy missteps in Washington, D.C., another wave of COVID-19 outbreaks in late fall and a market valuation reversion to historical norms.
The Good News: The good news for investors is that four out of BofA’s five models predict further upside for stocks between now and the end of the year.
The firm’s price target is lower because risk appears to be skewed to the downside at this point, Subramanian said.
“The range of outcomes based on realistic worst case (second wave, double dip recession) vs. best case (vaccine, stimulus, continued low rates) scenarios is roughly 2,200 to 4,000,” the analyst said.
In other words, BofA sees S&P 500 upside risk of 12.8% between now and the end of the year, but potential downside risk of 37.9% in that time.
Benzinga’s Take: Investors shouldn't underestimate how much the stock market hates uncertainty; this year’s presidential election is lining up to be anything but certain.
Any indication that the election results will be contested could potentially trigger a year-end market sell-off.