Bank of America Expects S&P 500 to Give Back Some 2026 Gains

The S&P 500 has posted its strongest quarterly performance since 2020 and is up about 9 percent this year, but analysts at Bank of America (BofA) expect the market to surrender part of those gains before year-end, Jason Ma reported for Fortune.

Bank of America analysts expect the S&P 500 to pull back later this year despite strong gains in the first half of 2026. (Photo: Mike Mozart Flickr)

In a research note, the bank reaffirmed its year-end target of 7,100 for the benchmark index, implying a decline of roughly 5 percent from its recent closing level.

"Our bear market signposts suggest speculation is hitting extreme levels as high-multiple stocks have gapped up demonstrably, an event that has historically preceded a valuation 'snapback,'" BofA said.

The bank also noted that companies in the S&P 500 are generating less free cash flow relative to net income than in previous years, largely because major technology companies continue to spend heavily on artificial intelligence infrastructure.

BofA also expects the Federal Reserve System to remain focused on persistent inflation.

According to the report, the bank forecasts three interest rate increases this year after concluding that the Fed has become less willing to tolerate inflation above its 2 percent target.

Although the S&P 500 has generally delivered positive returns during previous monetary tightening cycles, BofA said today's market enters such a period with valuations near historical extremes, comparable only to the period leading up to the 2000 dot-com downturn.