Bank of America CorporationThe S & P 500 has risen 20 per cent this year, largely due to a surge in corporate profits, but rising cost pressure on margins could cause the benchmark index to fall 6 per cent by the end of the year, the S & P 500 said on Wednesday.

BofA equity strategists, led by Savita Subramanian, expressed caution, although they raised their year-end target for the S & P to 4250 from 3800.

That target means the index will fall about 6 per cent by the end of the year from Wednesday's close of 4514.07.

Subramanian wrote: "the target for the S & P 500 is 4250, but what good news is left? Market sentiment is high and our seller's consistency indicator (Sell Side Indicator) is closer to sending a sell signal than at any time since 2007. Rising wage / input costs and supply chain shifts are starting to weigh on profit margins. "

Meanwhile, as the economy returns to growth after the recession caused by the epidemic, the Fed is preparing to cut back on purchases of Treasuries and mortgage-backed securities (MBS). BofA said asset purchases had been the backbone of the stock market, with the expansion of the Fed's balance sheet driving returns of more than 50 per cent since the global financial crisis.

"if the contraction means the S & P 500 rally stops, tightening [interest rates] will be even worse," the strategists said. " They also point to other worrying signs, including widening credit spreads.

Since June 2020, the Fed has been buying $80 billion worth of Treasuries and $40 billion of mortgage-backed securities (MBS) every month.

BofA on Wednesday also set a target of 4600 for the S & P 500 by the end of 2022, up only about 2 per cent from its current level.