Strategists at Bank of America Merrill Lynch on Monday raised the S&P 500 earnings target for 2018 by 4% to $159, citing stronger oil prices and stronger economic growth. “Higher oil prices are a benefit to S&P 500 EPS, where much of the index either produces commodities or supplies commodity producers,” said Jill Carey Hall, an equity and quant strategist at BAML. The research team expects WTI/Brent to average $65 to $70 a barrel in 2018, roughly 25% higher than initially forecast earlier this year. “Nearly 40% of the boost to our earnings forecasts both this year and next year comes from energy,” said Hall. The U.S. economy is also expanding faster than expected with BAML economists projecting 2018 gross domestic product to rise 3%, 0.1 percentage point higher than the previous forecast. A one percentage point increase in GDP boosts EPS growth by around 3 percentage points, the strategists said. Second-quarter earnings season is scheduled to kick off later this week with big banks reporting. BAML strategists are projecting second-quarter S&P 500 earnings to rise more than 20% to $39.75. The S&P 500
rose 0.8% to 2,781 Monday on the back of robust bank stocks while the Dow Jones Industrial Average
gained by triple digits to 24,761.