U.S. stocks will face more downside risks before the end of the year

The US Standard & Poor's 500 Index hit a new high on Monday, but Bank of America said that the market may still experience a sharp decline by the end of this year.

Savita Subramanian, head of U.S. stocks and quantitative strategy at Bank of America, wrote in a report on Tuesday:

"We think the S&P 500 Index will face more downside risks by the end of the year."

The bank maintained its year-end target of 4,250 for the S&P 500 Index, which was nearly 7% lower than Monday's closing level.

The reasons for the Bank of America's bearish S&P 500 index include exaggerated valuations, "almost fanatical market sentiment", and unfavorable factors such as supply chain disruption, labor inflation, potential tax hikes, energy crisis, and globalization peaking. The risk of profit peaking.

The bank added that for these reasons, the benchmark stock indicated that it may continue to struggle this year. Its target point for the S&P 500 Index in 2022 is 4,600, which is comparable to the current market level. The report stated that

"Abundant liquidity is the reason most markets have reaped returns after the global financial crisis. Bank of America's reduction in debt purchase forecasts indicate that the market will be flat (with current levels) by the end of 2022."

The U.S. stock market’s earnings season has entered the most critical week. As of Monday’s close, 117 S&P 500 companies have announced their earnings, 84% of which have exceeded expectations. This conceals rising inflation, the lingering COVID-19 pandemic, and the Fed. Concerns about seeking to remove stimulus measures as soon as possible.