- The S&P 500 could surge to 4,900 by year-end, representing potential upside of 20% from current levels.
- That's according to a Wednesday note from Bank of America that examined the current secular bull market in stocks.
- "History often rhymes and suggests a major higher low in 2020, which is the seventh year after the 2013 breakout, ahead of a continuation of the current secular bull market," BofA said.
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The secular bull market in the S&P 500 that began in 2013 is alive and well after 2020's pandemic-induced bear market, and there's more upside ahead, Bank of America said in a Wednesday note.
While interruptions along the way are likely, the S&P 500 could surge as high as 4,900 by the end of 2021, according to BofA. That price target is based on the bank's secular bull market roadmap and represents potential upside of 20% from current levels.
A secular bull market is a multi-business cycle uptrend for stocks that includes both cyclical bull and bear markets, as well as economic expansions and contractions. Secular bull markets have historically lasted upwards of 20 years, including the stock market run from 1980 through 2000.
But the stock market needs to cool down before its next leg higher, BofA said, pointing to an over extended rally from the March 2020 pandemic low.
"The risk is that the pace of the rally from 2020 is too fast," BofA explained. The S&P 500's rally from 2020 is one of the fastest on record, it noted.
"The best fits for the current rally are the rallies from 2009, 1982, and 1935. These prior rallies suggest correction risk in 2021, which is a threat to summer rally seasonality, and then higher highs into 2021-2022 and even 2024," BofA said.
A recent sell-off in the stock market, in part driven by rising interest rates and fears of rising inflation, represents healthy consolidation that could set the S&P 500 up well for further upside ahead, according to the bank.
Consolidation makes sense given the history of prior secular bull markets, as the seventh year tends to represent "halftime," BofA explained. Prior secular bull markets that began in 1950 and 1980 saw brief interruptions from cyclical bear markets in their seventh year, according to BofA.
Black Monday, in which the Dow Jones industrial average fell 23% in a single day, occurred in 1987. Meanwhile, in 1957 the economy entered a recession and a flu pandemic spread across the country. Now, seven years into the secular bull market that began in 2013, a global pandemic induced a 35% bear market sell-off and economic recession.
"History often rhymes and suggests a major higher low in 2020, which is the seventh year after the 2013 breakout, ahead of a continuation of the current secular bull market," BofA concluded.
