BofA: Gold Expected To Rise By 30% This Year

The U.S. stock market and gold are together marching towards a rare fourth year of double-digit gains, a historic level of strong market performance drawing significant attention from top Wall Street strategists.

According to Bloomberg, a team led by Michael Hartnett, Chief Investment Strategist at Bank of America, points out that the S&P 500 Index is expected to achieve a 20% annualized return, and gold is expected to record a 30% annual return. This kind of "large-scale" market trend sustained over several years is extremely rare in history.

As for the U.S. stock market, similar large-scale sustained rallies have only occurred three times: during World War II, the immediate post-war peace dividend period, and the technology bubble period from 1995 to 1999. The long-term strength of gold, on the other hand, was mainly concentrated in the stagflation phase of the 1970s.

In terms of market performance, the Nasdaq index and the S&P 500 Index have recently hit new historical highs. The S&P 500 Index started the year at 6,858 points and has risen to a peak of 7,394 points, a cumulative increase of about 7.8%. The Nasdaq index began the year at 23,236 points and has reached a high of 26,144 points, a cumulative increase of about 12.5%.

Regarding gold, the spot gold price at the beginning of the year was $4,332 per ounce. Based on the 30% annual return predicted by Bank of America's team, the corresponding target price is $5,631.6 per ounce. Although gold prices have recently corrected to $4,734 per ounce, they have reached a record high of $5,598.8 per ounce at some point during the year, only a stone's throw away from the aforementioned theoretical target, with a difference of about $32.8.

In terms of market impact, Hartnett's team's latest judgment is that small-cap stocks, emerging markets, and commodities have all reached a bullish long-term inflection point, with the materials sector being specifically named as the next area of strength.

The Market Rotation Accelerates, with the Materials Sector Becoming the Next Star

In the past few years, the robust performance of the U.S. stock market has been mainly driven by mega-cap technology stocks. The artificial intelligence capital expenditure boom has become the core driver of the latest round of increases, with the market's concentration being extremely high, and a few stocks contributing to the vast majority of the gains.

However, the market breadth is improving, with other sectors and asset classes showing a more pronounced upward momentum. Small-cap stocks, emerging market stocks, and commodities are all seen by the team as being at a bullish long-term inflection point, backed by the resilience shown by the U.S. economy. Consensus market forecasts indicate that the U.S. economy's nominal growth rate is expected to reach 5.5% this year, with corporate earnings growth forecasted at 20%, providing fundamental support for a broader market rally.

In terms of specific sector allocation, Bank of America's team has identified materials stocks as the next area of strength expected to rise. Currently, the materials sector accounts for only about 2% of the S&P 500 Index, which is at its lowest level in nearly 30 years. Hartnett's team believes that this is about to change, with drivers including geopolitical-driven resource competition, rising global military expenditures, artificial intelligence capital expenditure boom driving raw material demand, and the demand for construction materials driven by countries addressing housing shortages.