--- title: "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" type: "News" locale: "en" url: "https://longbridge.com/en/news/291819295.md" description: "Bank of America warns the S&P 500 faces a 'snapback' as speculation hits extreme levels, predicting a 5% drop to its year-end target of 7,100. Analysts cite excessive valuations, declining free cash flow from AI spending, and potential Fed rate hikes as key risks. While JPMorgan remains bullish with a higher target, Capital Economics highlights volatility reminiscent of past bear markets, questioning the rally's sustainability." datetime: "2026-07-05T19:43:41.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/291819295.md) - [en](https://longbridge.com/en/news/291819295.md) - [zh-HK](https://longbridge.com/zh-HK/news/291819295.md) generator: "portal-rs" --- # 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 finally rein in inflation. To be sure, the S&P 500 generally saw positive returns during previous tightening cycles, as stocks peaked six to 12 months after the first rate hike. But Fed rate hikes now would hit differently, BofA explained, because the S&P 500 is more expensive ahead of a first rate hike than any other cycle, except for the one that ran from 1999 to 2000. Chip stocks in particular have been on astronomical runs lately as the unrelenting AI boom sends demand soaring. Micron Technology, for example, is up 242% so far in 2026 and up 700% from a year ago, even after a recent selloff. That's fueled worries that the good times may be coming to an end soon. After hitting an all-time high of 7,621 just a month ago, the S&P 500 has gone on wild swings, losing about 2% in the process. Elsewhere, stocks have been on even worse stomach-churning rollercoasters. South Korea's high-flying Kospi stock index, which is dominated by AI darlings SK Hynix, and Samsung, set a new record a few weeks ago only to suffer its fifth worst daily plunge ever days later. Such moves are especially worrisome for Capital Economics, which pointed out that similar selloffs have previously only happened during bear markets like during the Asian financial crisis, the dot-com bubble, and the Great Financial Crisis. "This volatility is, in our view, evidence of excessive froth and calls into the question the sustainability of this rally," analysts said. Even a mostly bullish outlook from JPMorgan last month came with a "flash crash" warning. 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