Investing.com -- Bank of America laid out a muted outlook for U.S. stocks in a note on Monday, launching a 12-month S&P 500 target of 7,800 that implies just 2% upside from current levels.

Strategist Savita Subramanian also raised the bank's year-end target to 7,400 from 7,100, which now implies about 3% downside, and said investors will likely get a better entry point.

"Our 12-month target of 7800 is nothing to write home about, suggesting +2% from here," she wrote.

Subramanian said the market is overdue for a pullback, noting there has been just one 5% drop this year, in March, versus three in a typical year, while about half of the firm's bear-market signposts have been triggered.

She flagged risks around inflation, the Federal Reserve, earnings quality and credit, warning that today's price-to-earnings multiple implies far lower inflation than BofA forecasts.

Furthermore, the analyst drew a parallel with the 1970s, when upside inflation risk, dollar weakness and Fed hikes accompanied a 40%-plus decline in stocks.

The strategist played down concerns about a Democratic sweep in the midterms, calling it a "red herring" for capital spending given the AI buildout is largely driven by state governments.

Still, Subramanian said the long-term bull case remains intact, driven by productivity gains as companies swap labor for scalable processes.

BofA forecasts S&P 500 earnings growth of 33% in 2026 and 12% in 2027, and favors large-cap value, pockets of small- and mid-caps and the equal-weighted index over the cap-weighted S&P 500.