Every big call on the S&P 500 has an expiration date. When the bearish thesis breaks, the strategists who called it usually stop repeating it. Bank of America’s team just did both this week.
A more bullish market call, quietly
BofA’s US Equity and Quant Strategy team lifted its 2026 year-end S&P 500 target to 7,400 from 7,100 and set a 12-month target of 7,800, according to a note dated Sept. 18 that was shared with TheStreet. Both numbers imply modest returns from current levels rather than a runaway rally.
Multiples have compressed for a good reason: earnings have strengthened, according to the note. The bank is forecasting 33% S&P 500 earnings growth in 2026 and 12% in 2027. The risk of a sell-off into year-end is still elevated, the strategy team wrote, because current multiples imply lower inflation than the US economy is likely to deliver in the near term.
The AI trade just entered a new chapter
The bigger tell is what BofA did inside the sector calls. The team upgraded S&P 500 Communication Services to marketweight from underweight, closing out a June 2025 downgrade that hurt for 15 months.
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The sector is dominated by Alphabet (GOOGL) and Meta (META), which together make up 78% of the S&P 500 Communication Services weight, per BofA. Both spent 2026 in the market’s penalty box as investors punished the hyperscalers for AI capex growth outrunning cloud revenue growth.
That gap is starting to close. BofA now expects cloud revenue at Microsoft (MSFT), Amazon (AMZN), Alphabet, and Oracle (ORCL) to outpace capex growth in 2027, according to the note.
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What the note has BofA still worried about
Off-balance sheet commitments give me pause here, and BofA said the same thing. Uncommenced leases and non-cancellable contractual promises at the hyperscalers rose more than 50% between some recent quarters, well ahead of the more modest jump in the debt on their books, the bank wrote.
Long-term earnings expectations for Info Tech now sit at 43%, an all-time high, the note reveals. Comm Services growth expectations sit at 16%. That is why BofA prefers the hyperscalers over the chip trade at this level.
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The rate story is not immediately threatening either. Meta and Alphabet carry weighted average debt maturities of 17 to 19 years at reasonable coupon rates, based on Bloomberg data cited in the note.
Private-market supply is a lurking risk. SpaceX and other large private companies are inching toward public listings, and BofA’s analysis of past IPOs shows fund managers tend to “sell old stuff to buy shiny new things” when those deals hit the tape, the strategy team wrote.
What this means for your S&P 500 exposure
If you own an S&P 500 index fund or a target-date fund in your 401(k), the arithmetic is straightforward. BofA’s 7,400 year-end target implies a modest pullback from current levels, and the 12-month 7,800 call gets you back to gains, but not by much.
The bigger point is, my analysis lines up with the bank’s on the direction, if not the size. The picks-and-shovels trade has had its run, and the companies actually generating the cloud revenue may finally get credit for the spend. Whether that credit shows up in your account balance next summer will come down to whether the checks the hyperscalers are writing keep turning into cloud sales fast enough.
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