Bank of America’s 2026 U.S. Stock Market Forecast: Lackluster Growth Amid AI Valuation Risks

On December 15, 2025, Bank of America Securities’ head of U.S. equity and quantitative strategy, Savita Subramanian, released a bearish outlook for the 2026 U.S. stock market, projecting the S&P 500 would reach 7,100 by year-end—only a 4% increase from the December 15, 2025 close of 6,816.52 [0][1]. Her analysis highlighted two core risks: significant multiple compression in AI-focused “buy-the-dream” stocks and the market’s overreliance on non-economically sensitive companies, with AI stocks at risk of an “air pocket” in 2026 [1][2]. On the day of the forecast, the S&P 500 declined 0.64%, and the Technology sector—her primary area of concern—underperformed, dropping 1.40% [0], indicating immediate market sensitivity to her warnings about AI stock valuation.

1. Divergent Forecasts
   : Subramanian’s 7,100 target is the most pessimistic among major strategists, contrasting sharply with the median Wall Street target of 7,500 (~10% growth) and much more bullish projections from Oppenheimer (8,100) and Fundstrat (7,700) [3]. This wide divergence suggests significant uncertainty about 2026 market drivers.
2. Immediate Sector Reaction
   : The Technology sector’s 1.40% decline on December 15 aligns with Subramanian’s concerns, showing that investors may already be reassessing AI stock valuations in response to her analysis [0].

• AI Sector Volatility
  : If AI companies fail to meet elevated growth expectations, they could experience sharp price declines, dragging down the broader market due to their significant current weighting [1].
• Multiple Compression
  : Valuation multiples (e.g., P/E ratios) for high-flying AI stocks could contract, reducing stock prices even if earnings remain solid [1].
• Market Sentiment Volatility
  : The contrast between bearish and bullish forecasts may increase market swings as investors weigh conflicting outlooks [2].

While not explicitly identified in the data, Subramanian’s focus on the market’s lack of economically sensitive companies suggests potential outperformance for cyclical sectors if her concerns about AI stocks materialize [1].

As of December 15, 2025:

• S&P 500 close: 6,816.52 [0]
• BofA’s 2026 target: 7,100 (4% growth) [1]
• Median Wall Street target: 7,500 (~10% growth) [3]
• Technology sector performance: -1.40% [0]

Missing details include the specific metrics Subramanian used to forecast multiple compression and the exact market weighting of economically sensitive companies. Decision-makers should consider both Subramanian’s bearish view and contrasting bullish perspectives when evaluating 2026 market outlook [1][3].