Stocks Could Rally 50% in 2 Years

Bank of America says it’s so. The stock market may rally 50% in the next two years. If it happens, the market would go from very expensive to extraordinarily expensive.

A rally of that size would take the S&P 500 to 9,914 from about 6,500 today, which would be a 52.5% increase. Axios reports that Bank of America used historical data. In the past 100 years, the average gain among 14 bull markets has been 177% over 59 months, the newsletter reports. However, its editors say that certain events could make gains of this magnitude unlikely. And there may be some that make the chances for the run-up greater.

AI and Stocks

The reasons for a huge rally or decline are already part of the stock market discussion. The Magnificent 7 stocks (Meta, Amazon, Nvidia, Alphabet, Tesla, Apple, and Microsoft) are 35% of the S&P 500 market’s capitalization. The conventional wisdom is that they will benefit from the artificial intelligence (AI) revolution. Or, if AI does not reach the potential its supporters suppose, the S&P 500 could drop substantially.

AI is in an early enough stage that its effect is little more than a guess. Some scientists believe that it is the biggest and most important development in tech history. Others believe it is important, perhaps at the level the internet was. Some people believe it is so powerful that it will replace humans. Who will be left to trade stocks if that is true?

What is true is that the financial commitment to build AI server farms is over $300 billion this year. If this works, financially, hundreds of billions more will be invested. The roadblock may be the availability of electricity. Maybe AI can solve that.

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What About the Economy?

Then there is the economy in general. It is already starting to show cracks. The housing market is stuck in place because of high mortgage rates and rising home prices. Consumer spending, particularly by the middle class, has slowed. While the very rich continue to buy yachts and planes, that is not enough to drive the entire world economy.

The biggest drag on stock markets and gross domestic product is probably tariffs. Depending on the economist making the prediction, they will drive inflation to 9.1% as measured by the consumer price index, which was the case in June 2022. That was the largest increase in 40 years.

Finally, on a large scale, the world is unsettled both politically and militarily. The Ukraine war could boil over into Europe. The Gaza war could cause broad military conflict in the Middle East. China wants Taiwan, and the United States says China cannot have it.

In short, the 50% increase in the S&P 500 is a guess, with arguments on both sides whether it makes the entire journey from today.

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