The stock market is about to suffer a ‘snapback’ and will lose much of this year’s gains as ‘speculation is hitting extreme levels,’ BofA warns

The S&P 500 just notched its best quarter since 2020 and is up about 9% so far this year, but it’s mostly downhill from here, according to Bank of America.

In a note on Tuesday, analysts reaffirmed their year-end price target of 7,100 for the broad market index, representing a 5% drop from the week’s 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 added that S&P 500 companies are generating less free cash flow relative to net income compared to historical trends. That’s as so-called hyperscalers have seen their free cash flow plunge due to massive spending on the AI boom, eroding their earnings.

At the same time, the Federal Reserve is fighting sticky inflation after more than five years of letting it run above its 2% target. BofA recently predicted the Fed has now run out of patience and will hike rates three times this year to........

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