S&P 500 Target Update Nudging up year end target to 7400, launching 12m target at

S&P 500 Target Update Nudging up year-end target to 7400, launching 12m target at 7800

There will likely be a better entry point for S&P 500 14 September 2026

We mark-to-market our S&P 500 models and raise our year-end target to 7400 from Equity and Quant Strategy 7100, implying 3% downside. Fundamental & macro reasons aside (more below), we are United States entering a seasonally weak period and in our view are overdue for a pullback: we’ve had Savita Subramanian one 5% pullback this year (in March) vs. three per year typically; 10%+ corrections Equity & Quant Strategist BofAS happen once per year on average, and the last was Spring ‘25. 50% of our bear market signposts are triggered – not as bad as 70% seen in May-June, but still elevated. Our 12- month target of 7800 is nothing to write home about, suggesting +2% from here. Jill Carey Hall, CFA Equity & Quant Strategist BofAS Cautious on inflation, Fed, EPS quality, credit risk Inflation and P/E multiples have had a strong inverse relationship, and today’s P/E Alex Makedon Equity & Quant Strategist suggests much lower inflation (1.7%) vs. house forecasts (3.2%/2.4% in ‘26/’27.) The BofAS 70s rhymes with today – upside inflation risk, dollar devaluation, Fed hikes, an oil embargo – and its bear market saw a 40%+ decline in stocks and P/Es compress to 8x Victoria Roloff Equity & Quant Strategist from 19x. Full gush liquidity in 2025 is now a trickle: fewer central bank rate cuts/hike BofAS risk; buybacks slowing, equity supply coming fast after years of muted issuance and

more take-privates. EPS quality has deteriorated (see Clouds note), and any catalyst that Trey Brown Equity & Quant Strategist pushes financing costs higher from super-tight levels, be it Fed hikes, private lending BofAS hiccups, more revelation of off-balance sheet financing or unruly long rates, could hasten

pain. Credit cycles have started slow but ended fast and painful (see Rel. Value note). Nicholas Samoyedny, CFA Equity & Quant Strategist BofAS Less concerned about blue sweep (red herring), positioning

The narrative that a blue sweep in the mid-terms would gum up capex is not relevant in John Chapman Equity & Quant Strategist our view, as the AI buildout is more driven by state governments (and most big ones are BofAS in red states). Equity allocations today are not a near term risk – our Sell Side Indicator

is still in Neutral territory – but equity outflows may be a long term risk after 30+ years of index inflows if high paying professional services jobs are at risk from AI and 401(k) Acronym buster: inflows slow at a time that retirees are beginning to glide path out of equities. YE = year-end Long-term bull case is intact, lots of US equities to buy Productivity remains the long-term bull case for the S&P 500: as companies swap risky, NTM = next 12 months non-scalable people for processes. Major productivity cycles have been accompanied by a L/T = long-term declining equity risk premium (Exhibit 31), and labor-efficient companies almost always outperformed labor-intensive peers (Exhibit 34). The consumer is okay, as are jobs, and ERP = equity risk premium Mid Cycle and Late Cycle regimes have been good but not great for equities. We like Large Cap Value, pockets of SMID and the equal-weighted over cap-weighted S&P 500. OW / MW / UW = overweight / marketweight / underweight Earnings are not the problem: strong growth ahead We forecast S&P 500 EPS growth of 33% in 2026 and 12% in 2027 (see EPS Outlook), with growth outpacing what macroeconomic forecasts would suggest, supported by AI capex, manufacturing and productivity. But index earnings increasingly rely on an AI buildout, where it is a complex, interconnected and rapidly evolving ecosystem.

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