Corporate earnings are robust, there’s no denying that, but strong fundamentals may not be enough to compensate for “worsening liquidity, geopolitical tensions, sticky inflation and unfavorable seasonal trends,” all of which could conspire to trigger a pullback on Wall Street.
That was the message on Monday from BofA’s Savita Subramanian, who lifted the bank’s house call on 2026 aggregate S&P EPS to $365 from $345 to reflect… well, to reflect reality, for lack of a more concise way to put it.
“Corporate America delivered another outsized beat in Q2, with S&P 500 EPS growing 32% excluding GOOGL and AMZN’s one-time investment markups, blowing past consensus of 22%,” she wrote. “Guidance was also stronger than usual, particularly in Tech and Industrials.”
In the same update, she debuted her 2027 house call for index EPS. It’s $410, representing 12% growth, which she called “good but less great.”
The table on the left, below, shows you that “equity returns have historically moderated when profits remain above trend but are decelerating,” to quote from the same BofA note. “Strong earnings alone may not be sufficient to drive outsized market gains,” the bank said.
The figure on the right, above, is interesting. It shows how far afield we were in Q1 and Q2 on the earnings growth front versus the historical relationship between profit growth and real GDP.
That relationship’s “consistent with high-single-digit S&P 500 EPS growth, well below current consensus expectations of 32% in 2026 and 15% in 2027,” BofA went on.
The most compelling reason to expect a pullback in stocks, though, may be the simplest. As Subramanian noted, expressing near-term “caution” on the market, “the S&P 500 has gone nearly six months without a 5%+ pullback.”
There’s the updated drawdown / pullback chart for whatever it’s worth to you.
Late last month, Subramanian told Bloomberg she’s getting “a lot of flak” for her Street-low year-end SPX target.
“Clients used to kind of caution me and say, ‘you don’t want to be too bullish,'” she said. “Now they’re like, ‘what is going on, Savita? When are you going to raise your target?'”
