Bank of America lays out a bullish scenario where US stocks surge 14% over the next year

• Bank of America's sell-side indicator suggests an optimistic scenario could push the S&P 500 back to February peaks within one year.
• Though not the bank's base case, a return to 2019 fund allocation could drive $1 trillion back into stocks and help lift the index 14%, according to a Thursday note.
• When the indicator previously flashed such a strong "buy" signal, positive 12-month returns followed 94% of the time, the bank's analysts wrote.
• The index's earnings-per-share could even top past highs if GDP returns to last year's levels in 2021, the bank said.
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The S&P 500 could leap 14% over the next year if the US economic rebound hits every note right, Bank of America said Thursday.

Though not the firm's base case, its sell-side indicator is sending a historically strong signal to buy US stocks. Cash levels in funds are at a highly bearish level, leaving plenty of fuel for a market run-up if sentiments improve.

Whether a second wave of virus cases is avoided, a reliable vaccine emerges, or consumer spending poses a sharp bounce-back, a return to 2019 market positioning could drive $1 trillion into stocks and send prices soaring, Bank of America said.

"With the Fed spending close to 40% of GDP and fiscal stimulus adding another 35% to plug the 2020 COVID-19 hole, and with multinationals re-shoring and investing in the US, we could get a big economic pickup next year," the team led by Savita Subramanian wrote in a note to clients.

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When the indicator previously flashed such a strong "buy" signal, positive 12-month returns followed 94% of the time, the analysts added. Should the sell-side signal prove right yet again, the benchmark index could close in on its February 19 peak of 3,393.

The optimistic scenario also sees S&P 500 earnings-per-share surging to a record $180 if GDP recovers to 2019 levels, the team wrote. The metric last peaked at roughly $140 per share at the end of last year, lending Bank of America's forecast to suggest a massive jump in corporate profits arriving as soon as next year.

Arriving at a 14% rally amid the coronavirus pandemic won't come easy, the strategists warned. China's rebound suggests consumer spending might not return to past norms as quickly as hoped, and early statewide reopenings increase the likelihood of a second coronavirus wave.

Read more: A value-investing expert explains why beaten-down stocks are the most appealing since the dot-com bubble — and shares 3 stocks he bought as the coronavirus crash created 'rare' opportunities

The back-to-back economic downturns experienced by millennials could lead the demographic to hold back on spending and save more. Uncertainty around the US presidential election and future tax regimes could chip away at market sentiments, the team added.

Bank of America reiterated its preference for stocks over bonds in the current market backdrop, calling the choice "a no-brainer." Both asset classes have enjoyed strong rallies from their March lows, but on a free cash flow basis, the S&P 500 is still inexpensive and stands to breach new records within one year, the bank said.

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