Bank of America's Savita Subramanian is joining a bunch of other Wall Street strategists who are boosting their S&P 500 targets after realizing they were too cautious.

Her new year-end target is 1,400, up from her initial target of 1,350.

However, Subramanian's fundamental assumptions are largely unchanged.  Rather, her rationale for moving her target is that stocks are just higher.  From her note to clients today:

Our year-end target for the S&P 500 is based on a combination of models, including some that are return based. While there has been no major shift in these models since establishing our 1350 target last year, the 25% move in the market has raised the base for some of our models and leads us to raise our 2012 target to 1400. This represents limited upside (about 2%) from current levels. Our 1400 S&P 500 target for year-end 2012 is principally based on our earnings forecast and risk premium assumptions, but if the last several years have taught us anything, it is that fundamentals sometimes take a backseat to sentiment, technicals and the macro backdrop. As a result, we explicitly incorporate these signals into our forecast.

Last week, UBS's Jonathan Golub boosted his target from 1,325 to 1,475.  In January, Credit Suisse's Andrew Garthwaite boosted his target from 1,340 to 1,400.  Citi's Tobias Levkovich also boosted his target to 1,425 from 1,375.

One notably stubborn bearish strategist on Wall Street has been Goldman Sachs' David Kostin who is sticking to his 1,250 target.

SEE ALSO: Wall Street's Sharpest Minds Predict Where Stocks Are Headed In 2012 >

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So, what's next for stocks after the best quarter in 14 years?

Bank of America's Savita Subramanian thinks they could head up much further.

According to the firm's proprietary Sell Side Indicator, strategists' bullishness receded in March to 55.8, marking the sixth decline in eight months.

From Subramanian's note to clients:

With the S&P 500’s indicated dividend yield near 2%, that implies a 12-month price return of 12% and a 12-month value of 1580. Although this is not our official S&P 500 target, this model is an input into our target, which incorporates valuation, sentiment and technicals. Historically, when our indicator has been this low or lower, total returns over the subsequent 12 months have been positive 93% of the time, with median 12-month returns of +23%.

To be clear, this is a contrarian indicator:

The Sell Side Indicator is based on the average recommended equity allocation of Wall Street strategists as of the last business day of each month. We have found that Wall Street’s consensus equity allocation has historically been a reliable contrary indicator. In other words, it has historically been a bullish signal when Wall Street was extremely bearish, and vice versa.

Subramanian's official current year-end target for the S&P 500 is 1,400.

Here's a chart from Subramanian's report:

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All investors fear falling into the dreaded value trap, which is where stocks look cheap but they go nowhere or fall further.

Bank of America's Equity and Quant Strategy team led by Savita Subramanian screened the markets for industries trading at discounts to their historical price multiples, yet do not appear to offer any upside in price.

"Seven industries screened as Value Traps this month, with defensives (Staples and Pharma) and commodity-exposed industries (Metals & Mining and both Energy industries) dominating," wrote Subramanian.

The team also named the names of stocks in the value-trap industries that were rated neutral or underperform by Bank of America's analysts.

Beverages

Stocks To Avoid

• Coca-Cola Enterprises
  (CCE)
• Dr Pepper Snapple Group
  (DPS)
• Molson Coors Brewing Co
  (TAP)

Source: Bank of America Merrill Lynch

Household Products

Stocks To Avoid

• Clorox Co
  (CLX)

Source: Bank of America Merrill Lynch

Energy Equipment & Services

Stocks To Avoid

• Diamond Offshore Drilling
  (DO)
• FMC Technologies
  (FTI)
• Rowan Companies
  (RDC)

Source: Bank of America Merrill Lynch

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We last heard from Savita Subramanian two months ago when she boosted her year-end target on the S&P 500 from 1,350 to 1,400.

Subramanian, Bank of America's top U.S. equity strategist, is back and she just boosted her target again.

From her note to clients this morning:

Since we last updated our S&P 500 target in March, the readings on two of our five input models have turned more bullish on stocks: the Sell Side Indicator and the Estimate Revision Ratio. As a result, we are raising our 2012 year-end target from 1400 to 1450, which represents modest upside of about 6% from current levels. All but one of our models are now forecasting healthy returns of 10-19% for the remainder of this year, with exception being our Fair Value model.

BofA's Sell Side Indicator is a contrarian metric that turns bullish when Wall Street sell-side strategists turn bearish.  According to the measure, strategists haven't been this bearish since April 2009.

The Earnings Revision Ratio has increased to 1.0 in April from 0.8 in March, which means just as many analysts are making upward revisions to earnings estimates as analysts are making downward revisions.

Like most strategists, Subramanian is concerned elevated uncertainty could keep risk premiums high in the near term.  Her advice: "Be an investor, not a speculator."

SEE ALSO: BofA: 30 Stocks That'll Add Some Juice To Your Portfolio >

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The stock market has been reacting to macro data and news, rather than fundamentals.  This is according to Savita Subramanian, head of U.S. equity strategy and BofA Merrill Lynch.

Subrmanian has a 1,450 year-end target for the S&P 500.

Speaking at BofA's mid-year press conference Subramanian said two key things about investing in stocks.

1) The sell-side indicator looks bullish

First, she said equities have reason to rally rather than sell off.

BofA's proprietary sell-side indicator – a contrarian indicator that measures the bullishness and bearishness of Wall Street analysts – concludes a 2012 year-end target of 1,464.

Subramanian says the reason she expects stocks to rise is because strategists are recommending being underweight in equities, relative to what they have over time. The normal benchmark allocation to equities is about 60 - 65 percent, a figure that has today plummeted to about 50 percent.

"What we found is that this is actually a pretty strong sign that equities are pricing in a pretty bad-case scenario," said Subramanian. "Sentiment has gotten to levels that we haven't seen since the mid to late-90s when strategists were quite bearish. Again that was probably the wrong time to sell equities, we think that today the same signal could apply. That sentiment has gotten to levels that suggest equities could actually surprise on the upside, rather than the downside."

2) Look for quality and yield

In a market where stocks are responding to news rather than fundamentals, Subramanian said there are two key themes that investors should watch: quality and yield.

Dividend stocks will have legs for the next couple of decades, since there is a "strong supply-demand imbalance for yield-oriented investments".

Supply on the bond side is limited since the Fed is keeping interest rate low for some time. And the S&P's payout ratio is also at an all-time low.

On the demand side, baby boomers are retiring with the proportion of retirees in the U.S. set to double over the next 20 years.

"A large and growing investor base is shifting from more of the capital-appreciation stories to the yield-oriented investments," said Subramanian.

With this in mind, Subramanian recommends shifting focus to stocks that have yield and the ability to grow their dividend rather than stock up on stocks that have the highest yield like utilities and telecom, but are expensive. Consumer staple stocks for instance pay out about 60 percent in dividend and have drive power to actually increase those dividends, while many utilities stocks pay out 90 percent of their earnings leaving little room for growth.

Don't Miss: We Just Saw Michelle Meyer's Presentation On The US Economy, Here's What We Learned >

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Wall Street's strategists are more bearish on stocks right now than they were in the wake of the tech bubble collapse or even in the aftermath of the global financial crisis of 2008.

In fact, they haven't been this bearish since 1998, 15 years ago.

In a new note titled "Wall Street Proclaims The Death Of Equities", Bank of America Merrill Lynch equity strategists Savita Subramanian, Dan Suzuki, and Jill Carey point to that their proprietary contrarian sell side indicator which is starting to look very bullish:

After triggering a Buy signal in May, our measure of Wall Street bullishness on stocks declined again, marking the ninth time in eleven months that the indicator has fallen. The 0.8 ppt decline pushed the indicator down to 49.3, the first time below 50 in nearly 15 years, suggesting that sell side strategists are now more bearish on equities than they were at any point during the collapse of the Tech Bubble or the recent Financial Crisis. Given the contrarian nature of this indicator, we are encouraged by Wall Street's lack of optimism and the fact that strategists are recommending that investors significantly underweight equities vs. a traditional long-term average benchmark weighting of 60-65%.

"The Sell Side Indicator is based on the average recommended equity allocation of Wall Street strategists as of the last business day of each month," they write. Here is what the indicator looks like:

The BofA team's punch line: the level of the indicator suggests an S&P 500 target of 1665 in a year, or a 22 percent return. The BofA analysts say this is not their official price target, but this indicator is part of the model that they use to generate it.

The question becomes: which of the equity analysts are right?

SEE ALSO: If You Had Invested $1 In Stocks In 1824, Then You'd Be Filthy Rich Right Now

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Savita Subramanian and the U.S. equity strategy team have noted that Wall Street analysts have been unusually bearish lately, a phenomenon that often precedes a massive rally in the market.

In other words, Subramanian is suggesting that the best move may be to do the exact opposite of what Wall Street is saying.

In a new note to clients, she offers even more evidence suggesting that analysts might not be worth what they're getting paid for.

"Today, estimates may be lower quality than normal, given evidence of herding around consensus," she wrote.

Chart 14 shows that the "dispersion of EPS estimates for S&P 500 companies is near all-time lows, likely reflecting an unwillingness of analysts to diverge from consensus amid macro uncertainty."

SEE ALSO: The Most Important Charts In The World >

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Since we posted about how BofA's sell-side sentiment indicator is currently flashing the biggest bullish signal for stocks they've ever seen, we've received a few questions about the math behind the indicator.

Here is BofA head of quant and equity strategy Savita Subramanian's explanation of how the indicator is calculated:

The Sell Side Indicator is based on our survey of the Wall Street Strategists that submit their asset allocation recommendations to us or to Bloomberg (currently, there are nine). For this indicator, we use the simple average of the recommended equity weighting for each strategist as of the last business day of each month. The thresholds for the Buy and Sell readings are rolling 15-year +/- 1 standard deviations from the rolling 15-year mean (previously, we had used cumulative standard deviations and means).

We have found, when adding a little math, that Wall Street’s consensus equity allocation has historically been a reliable contrary indicator. In other words, it has been a bullish signal when Wall Street was extremely bearish, and vice versa. The Sell Side Indicator does not catch every rally or decline in the stock market, but as you can see in Chart 2, the indicator has historically had some predictive capability with respect to subsequent 12-month S&P 500 total returns. Although the r-squared of 27% might sound low, it is significantly higher than similar statistics for typical variables used in stock market timing models (Table 1). In particular, note that such heralded indicators such as the “Fed Model” and money growth have relatively little predictive value.

Here is the chart that shows the correlation between the indicator and the S&P 500's subsequent 12-month return:

And here is a table provided by BofA Merrill Lynch comparing the sell-side indicator's predictive power against a few other familiar strategies:

Now check out how wildly bullish this indicator is right now >

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Savita Subramanian, Bank of America's Chief U.S. Equity Strategist, joins Citi's Tobias Levkovich this week in unveiling a 2013 target for the S&P 500. 

And she's bullish.

Our 2013 year-end target of 1600 implies a 10% price return, where most of the appreciation can be attributed to earnings growth of 7% next year, along with modest multiple expansion from 14.2x to 14.7x on trailing earnings, still below an average PE of 16x. This would represent a new all-time high for the S&P 500, surpassing the 1565 level reached in October 2007. But the S&P 500 total return and equal weighted indices have already broken through their 2007 highs, as have the sector indices for Discretionary, Staples, Health Care and Tech (and the NASDAQ). Meanwhile, S&P 500 EPS hit new highs in 2011.

Among other things, Subramanian points to the firm's proprietary contrarian Sell Side Indicator, which shows that Wall Street continues to be extremely bearish.

Historically, when the indicator has been below 50, total returns over the subsequent 12 months have been positive 100% of the time. Current bearish sentiment suggests +30% 12-month price returns.

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Yesterday, we highlighted a note from Deutsche Bank chief equity strategist Binky Chadha pointing out that hedge funds are still underweight stocks while inflows into equity ETFs – a common investment vehicle for retail investors – are surging at record pace.

In a note today, BofA equity strategist Savita Subramanian writes that she's basically seeing the same thing among her client base: No one is really buying stocks right now.

From the note:

Last week (9/17-9/21), during which the S&P 500 was down 0.4%, BofAML clients were small net sellers of US stocks in the amount of $176mn. This was the third consecutive week of net sales, as clients have taken profits after QE3 and the summer rally. Hedge funds led last week’s outflows, and institutional clients were also net sellers. Private clients bought US stocks for the first time in twelve weeks (Chart 1), but this was almost entirely due to ETFs. Excluding ETFs, private clients were also net sellers of US stocks. By market cap, all three size segments saw net sales last week.

Echoing Chadha's comments yesterday, Subramanian says BofAML private clients are flocking to stock market exposure via ETFs in droves. She writes that "private clients’ net buys of ETFs were the second-largest in the history of our data (since 2008)."

And the stocks the individual investors are buying most, according to Subramanian: tech stocks, which suggests perhaps a more aggressive belief in a cyclical market rally.

ALSO: MORGAN STANLEY: We Could See QE4 By The End Of The Year >

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Industry: Road & Rail

Stocks:

1. Swift Transportation Co (SWFT)
2. Knight Transportation (KNX)
3. J.B. Hunt Transport Services (JBHT)
4. Union Pacific Corporation (UNP)
5. Kansas City Southern (KSU)

Rationale: Rebuilding cycles usually give trucking and rail companies a boost as demand for raw materials and corresponding freight needs increase.

Source: BofA Merrill Lynch

Industry: Paper & Packaging

Stocks:

6. Weyerhaeuser Co (WY)
7. Louisiana Pacific Corp (LPX)

Rationale: Positive housing trends have already spurred lumber demand, and post-hurricane reconstruction could provide an additional tailwind to lumber stocks.

Source: BofA Merrill Lynch

Industry: Restaurants

Stocks:

8. Yum! Brands (YUM)

Rationale: Restaurants "tend to open faster than consumers regain power" and can achieve additional sales that way. Furthermore, increased construction activity could spur demand for more fast food breakfast and lunch orders.

Source: BofA Merrill Lynch

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According to Bank of AmericaMerrill Lynch, analysts have slashed 4Q EPS estimates by 12 percent since April due to fears about the macroeconomic environment.

But some companies may now have an easier time beating those lowered expectations.

Led by Savita Subramanian, BAML's equity strategy team has screened for stocks they consider are most likely to beat analysts' estimates for 4Q.

All of their choices are buy-rated stocks that beat either sales or EPS expectations the previous quarter.

All but four stocks from the team's list come from either the Consumer Discretionary, Energy, or Information Technology sectors.

We've listed each of the 17 stocks along with their tickers, sectors, and consensus EPS and revenue estimates for 4Q.

Carnival Corp

Ticker: CCL

Consensus EPS & Sales: $0.06/share on revenue of $3.54 billion.

Sector: Consumer Discretionary

Source: Bank of America Merrill Lynch, Yahoo Finance

Home Depot Inc.

Ticker: HD

Consensus EPS & Sales: $0.64/share on revenue of $17.65 billion.

Sector: Consumer Discretionary

Source: Bank of America Merrill Lynch, Yahoo Finance

Lowe's Cos.

Ticker: LOW

Consensus EPS & Sales: $0.24/share on revenue of $10.82 billion.

Sector: Consumer Discretionary

Source: Bank of America Merrill Lynch, Yahoo Finance

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With stocks sitting near all-time highs, some experts warn that market sentiment is getting frothy.  Historically, when sentiment peaks, stocks start to sell-off.

Bank of AmericaMerrill Lynch's Savita Subramian agrees that sentiment has improved.  But she argues that they are far from those dangerously bullish levels.

"Even though the S&P 500 has already risen 10% in the six months since sentiment bottomed, history suggests that rising markets can persist for years after sentiment troughs," writes Subramanian in a new note to clients.  "Some have argued that our measure of sentiment, which is based on sell side strategists’ equity allocation recommendations, does not adequately capture today’s bullish market sentiment, as evidenced by the recent surge in equity inflows and rising stock prices."

Here's a look at where BAML's popular proprietary indicator.  It's still bullish for stocks.

Subramanian expands on two reasons why she still thinks sentiment isn't very bullish.

1) Sell-side strategists aren't bullish

"While 13 of the 15 strategists contributing targets to Bloomberg’s strategist poll at the start of the year were forecasting that the S&P 500 would end the year higher in 2013, the average implied upside was less than 5%, below the 50-year average price return of 7% and the lowest forecasted upside in eight years. In fact, following the market’s recent rally, the forecasted upside for the rest of the year has fallen to only 1%. This corroborates the subdued sentiment reading from the Sell Side Indicator."

2) Equity inflows have been big, but not big enough to offset years of outflows

"Despite record inflows into equity long-only funds this year, it has not been enough to offset capital outflows over the past several years. As a result, equity long-only funds remain one of the only asset categories to have negative cumulative inflows over the past three years."

Subramanian sees the S&P 500 ending the year at 1,600.

SEE ALSO: WALL STREET: Here's What The S&P 500 Will Do This Year >

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Fat corporate profit margins have been a key driver of the surging stock market.  Indeed, this has been the foundation of recent earnings growth.

But is this theme sustainable?

"One of the most common bearish arguments that we hear from clients is that margins are mean-reverting," writes Dan Suzuki, equity strategist for Bank of AmericaMerrill Lynch. "With net margins near record levels, a reversion to the mean would result in a 15-20% hit to earnings."

This is the position shared by the likes of John Hussman, GMO's Jeremy Grantham, and SocGen's Albert Edwards.

Some have attributed recent profit margin gains to companies squeezing more out of their workers.  This would explain why corporate profits have surged to record highs even as wages have stagnated and unemployment rates remain stubbornly high.

Low wage-driven margin gains are unsustainable, warns David Rosenberg.

However, the bears appear to be focusing too much on what amounts to being a small component of margin gains.

"There are several reasons why margins should remain structurally higher than the historical average," writes Suzuki. "Importantly, roughly two-thirds of the improvement in net margins can be attributed to changes below the operating line, specifically interest expense and taxes."

Here's Suzuki's breakdown of how margins got to be so fat.

And Suzuki thinks low interest expense and taxes are sustainable:

The S&P 500’s effective tax rate has fallen as an increasing share of profits is being generated from overseas where tax rates are lower. We do not expect any meaningful decline in the share of foreign profits, and if we eventually see US corporate tax reform, most of the proposals actually call for corporate tax rates to be lowered, not raised. Meanwhile, lower leverage levels and interest rates have reduced the interest expense burden of companies, and although we could see interest rates rise from current depressed levels, we would still expect them to remain well below history. We also do not see any rush for corporations to meaningfully re-lever their balance sheets for the foreseeable future. Every 10bp of margin expansion translates into roughly 1ppt faster EPS growth relative to sales growth.

Suzuki believes it's a mistake to think that margins will revert to a long-term mean just for the sake of reverting to a mean.

Rather, he argues that high margins reflect a long-term structural change, not a short-term cyclical one.  This has long been the position of veteran market strategists David Bianco of Deutsche Bank and Brian Belski of BMO Capital.

So, while it may be the case that low wages are unsustainable, the profit margin story is being driven by much larger long-term forces.

Suzuki expects S&P 500 earnings to grow to $115 per share in 2014, up 6% from this year's $109 level.

"While we expect global economic growth to accelerate in 2014, growth will continue to be hampered by global fiscal austerity with limited scope for significant incremental monetary easing," he wrote.  "And given how lean corporate cost structures have already been cut, we believe it will be difficult for corporations to generate further earnings growth through further margin expansion. As such, we expect the S&P 500 to maintain the current growth trajectory of 5-7% annually."

SEE ALSO: 9 More Super-Controversial Math Facts That People Refuse To Believe Are True >

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In a note to clients today, BofA Merrill Lynch Head of U.S. Equity Strategy Savita Subramanian ups her year-end target for the S&P 500 to 1750 from 1600 – making hers the second-most bullish forecast on the Street, behind Cannacord's Tony Dwyer, who sees the index finishing 2013 at 1760.

Subramanian's 1750 target implies around 4.2% upside from today's levels at 1680 by the end of 2013.

(Before today, only two Wall Street equity strategists had lower S&P 500 price targets than Subramanian: Gina Martin Adams at Wells Fargo, with a target of 1440 by year-end, and Barry Knapp at Barclays, with a target of 1525.)

"Our new 2013 year-end target of 1750 implies modest upside from current levels, attributable to expected earnings growth, contrasting with returns so far this year driven by multiple expansion," says Subramanian. "While the decline in the equity risk premium (ERP) has been more than twice what we expected, we think it is justified by diminished tail risks, positive surprises in the US economy, and, as expected, a continued decline in earnings volatility."

The biggest input into Subramanian's new S&P 500 price target forecast is the BAML Fair Value model, which assumes a forward price-to-earnings ratio unchanged from current levels at 16 and full-year S&P 500 earnings of $107.50 per share in 2014.

The assumption of a 16x price-to-earnings ratio rests heavily on Subramanian's forecast for the equity risk premium.

Below, Subramanian gives her thoughts on the ERP:

The equity rally over the last eight months has been primarily driven by multiple expansion, with the forward PE multiple on the S&P 500 expanding from 12x to 14x (18%). In our fair value model, we focus on the normalized forward PE multiple, which has also risen from 13.5x to 16.0x (18%). This multiple expansion has predominantly been a function of the significant decline in the equity risk premium (ERP), partially offset by a modest rise in real normalized interest rates.

While current real normalized rates are only modestly higher than our previous year-end assumption of 1.0% (now forecasting 1.5%), the 135bp drop in the ERP is more than double the 50bp that we had originally assumed going into the year. This rapid ERP compression reflects the reality that many of the major uncertainties overhanging the market have been removed or significantly diminished (US election, fiscal cliff, sequestration, Eurozone collapse, China hard landing).

But at 500bp, the ERP is currently still well above the sub-400bp levels preceding the financial crisis, and we think it should continue to decline over the next several years as the memory of the Financial Crisis fades, corporate profits continue to make new highs and some of the macro risks abate. We expect the “wall of worry” to persist as new concerns emerge, but visibility is clearly improving and we still expect global growth to pick up as the year progresses.

As such, we have lowered our normalized risk premium assumption in our fair value model for the end of 2013 from 600bp to 475bp, which assumes roughly another 25bp of ERP contraction by year-end. We have also raised our normalized real risk-free rate assumption for year-end from 1.0% to 1.5%. Not only have current and future inflation expectations declined since last fall, but long-term interest rates have also begun to rise recently. Meanwhile, our Rates Strategist Priya Misra also recently raised her interest rate forecasts.

The chart below shows BAML's ERP forecast.

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Most economists and stock market strategists agree that a boom in capital expenditures — that is, business investment — will be the next major catalyst to economic and earnings growth.

But since the financial crisis, most companies have deployed excess cash toward building up their balance sheets. And with growth prospects limited, many companies have also opted to return cash to shareholders in the form of buybacks and dividends.

But according to a new survey conducted by BofA Merrill Lynch Global Research, investors would much rather have companies use that cash via capital expenditures (that is, business investment). These expenditures could include the financing of both maintenance and growth projects.

"More than ever, investors are agitating for companies to invest in growth instead of using their cash for buybacks, dividends, or balance sheet repair," said strategist Savita Subramanian. "BofAML’s Global Fund Manager Survey suggests that 58% of investors currently prefer capex over other forms of cash deployment — a record high in the history of the survey data (since 2002)."

And it's not just talk.

"As valuations have risen, companies engaging in significant share buybacks have begun to underperform, in stark contrast with the outsize gains we saw during 2012 and most of 2013," noted Subramanian referring to the chart below. "This contrasts with the recent outperformance of companies that are investing in growth."

In other words, investors may be punishing companies for buying back stock.

Everyone's been writing about capital expenditures lately. Perhaps 2014 is when the boom finally happens.

SEE ALSO: Four Takes On The CapEx Conundrum

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Wall Street's predictions for 2015 have been rolling in fast and furious over the last few weeks, and the latest firm giving its projection for the S&P 500 is Bank of America Merrill Lynch.

Savita Subramanian and the equity strategy team at BAML see the S&P 500 rising to 2,200 in 2015, a modest 6% return.

Subramanian notes that this is the lowest forecasted S&P returns since her team took over the year-end forecast role in 2011. 

"Stocks certainly look more attractive than bonds," Subramanian writes, "[but] the case for stocks versus other asset classes is less clear."

Subramanian notes that gold and oil are now particularly cheap against stocks on a historical basis, and she expects that stocks will rise in-line with earnings growth. But similar to the forecast from David Kostin and the equity team at Goldman Sachs, Subramanian sees no multiple expansion for the S&P 500 in 2015. 

Despite the modest upside forecast, Subramanian still sees plenty of reasons to buy US stocks. 

"[Bank of America Merrill Lynch's] Sell Side Indicator, which tracks Wall Street Strategists' average recommended allocation to US equities, currently sits at just 52%," Subramanian notes. "This is up from the all-time low of 43% we observed in July 2012, but well below the historical strategic equity allocation of 60-65%."

And so with investors likely underinvested in stocks, this is a bullish sign.

Subramanian also says that though the aging — and retiring — US population is often cited as a negative for stock, Boomers will need both income and capital appreciation, making the S&P 500's dividend-paying members attractive to these investors. 

To this end, Subramanian sees "big, old and ugly" stocks as potential leaders in 2015, and says investors ought to consider leaving the "new, shiny, exciting IPOs alone."

And overall, though Subramanian expects more modest gains in 2015, she says the bull market is still in tact.

"So while returns may compress from the outsized gains we have seen over the last several years, we remain constructive on equities. The bull market in stocks is not over, in our view."

For some perspective, here's what some of Wall Street's other top strategists have predicted so far:

• Bank of America Merrill Lynch's Savita Subramanian: 2,200
• Credit Suisse's Andrew Garthwaite: 2,100
• Goldman Sachs' David Kostin: 2,100
• Barclays' Jonathan Glionna: 2,100
  
• Deutsche Bank's David Bianco: 2,150
• Citi's Tobias Levkovich: 2,200
• UBS's Julian Emanuel: 2,225
• Oppenheimer's John Stoltzfus: 2,311

SEE ALSO: One Wall Street Bull Expects Another Year Of Double-Digit Gains

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From Bank of America Merrill Lynch's Savita Subramanian:

Intra-stock correlations ticked down slightly in 1Q to 35% from 37%, which is typically a benefit to stock-pickers, but they remain elevated vs. their average of 26%.

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NOW WATCH: What the Chinese saying 'The ugly wife is a treasure at home' actually means

The biggest threat to stock probably isn't what you think.

People who think the Federal Reserve's asset purchases drove the rally in stocks are dreading higher interest rates.

They argue that higher rates will derail the rally by increasing the cost of borrowing and putting pressure on company's earnings.

But analysts at Bank of America Merrill Lynch think the impact this will have is overstated and the Fed will in fact be doing the opposite of what people are anticipating is the biggest risk for stocks.

In a note to clients, BAML's Savita Subramanian writes that a fourth round of bond buying (called quantitative easing, or QE) by the Federal Reserve is actually the biggest threat to stocks:

While most are focused on the risks around a withdrawal of liquidity, we believe the biggest hit to confidence could be the opposite: if another round of US QE is necessary to prop up the economy. While the market could have a knee-jerk rally on an indication of forthcoming stimulus, we think this would likely be short-lived and could end in the red. QE fatigue is already evident: each subsequent round of QE has seen diminishing risk rallies.

The reason? It would be a sign that $4.5 trillion in QE was not enough, Subramanian writes.

And it won't look great for central banks in Europe and Japan — which are already in QE mode — if the US heads in that direction.

Right now this option isn't on the bank's radar, since the third round of quantitative easing has brought the Fed to a point at which it has signaled a rise in interest rates this year.

Also, we've seen that stocks have rallied in the six months leading up to and after the Fed's seven rate hikes since 1983.

And so the biggest risk to stocks does not appear imminent. But this risk is also something not many people are talking about.

SEE ALSO: Bank of America goes wild in this chart

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NOW WATCH: 6 word puzzles that only finance geeks will understand

The Oracle of Omaha is facing some opposition.

In a note to clients on Monday, Bank of America Merrill Lynch’s Savita Subramanian wrote that Warren Buffett’s favorite metric of long-term value "may have limited utility."

The market cap to GDP ratio, which once characterized as the "single best measure" of value, is used to determine whether the stock market is overvalued or undervalued.

And given that this measure shows the S&P 500 is 80% above its historical average level, some might find signals from the market cap to GDP ratio concerning. But BAML is skeptical about how good of a measure it actually is of the stock market's value. 

Subramanian points to three main reasons why the metric is not one of BAML’s favorite for valuing equities:

1. Market Cap/GDP is like Price/Sales, "with all of its shortcomings and more." BAML adds that neither measure takes structural changes in profit margins into account, which is problematic. In 2014 corporate margins grew to new highs due to lower taxes, lower interest expense, and higher operating margins in tech.
2. Global GDP should be used because it is more closely tied to the S&P 500 than US GDP. This is because S&P companies are generating more and more sales and profits from overseas, not just in the United States.
3. There are too many mix differences between the US equity market and the entire US economy. For example, sectors like technology and energy hold a much stronger weight in the stock market than they do for US GDP. Also, US GDP is more services-oriented, while profits from S&P companies are more goods-oriented.

Here’s what the Market Cap to GDP ratio has looked like since 1964:

And so this measure currently makes the stock market look expensive, but at least in BAML's view, there are plenty of reasons not to worry about something that might have the world's most famous investor concerned.

SEE ALSO: Warren Buffett's favorite stock market indicator is sending mixed signals about the economy

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