Bank of America is telling investors to "don't worry, be happy" as they turn even more bullish on the stock market.

The bank increased its year-end S&P 500 price target on Wednesday to 4,600 from 4,300, representing about 3% potential upside from current prices, and said that the index could go as high as 4,700. 

The bullishness from BofA equity strategist Savita Subramanian comes as investors grow increasingly worried about higher oil prices, elevated inflation, and what the Federal Reserve will do with interest rates. The S&P 500 has declined just over 3% since its 52-week high in late July. 

"'Recession averted' says the consensus economist, but a fresh wave of bear narratives around equities have emerged (more bricks [for wall of worry])," Subramanian said on Wednesday. "I see far more bullish indicators for mid and large-cap stocks than I do bearish. And what I think is interesting is that every day a new bearish narrative emerges."

Despite growing investor worries, Subramanian sees plenty of reason for optimism. These are the five reasons why the equity strategist is staying bullish on the stock market.

"AI is part of this, as are automation, right-sizing labor, and wage inflation incentives after a decade of easy, financially-engineered earnings growth. Productivity would likely drive the equity risk premium (ERP) lower. Labor efficiency from the mid 80s to 2008 saw 15%/yr total returns, real rates averaged 3.4% (vs. today's 2%) and ERP fell. Old economy, inefficient companies could benefit as much as Tech and growth, but have not priced this theme in as richly."

"Fixed income duration is fixed. But companies can lower equity duration in the face of higher rates, as META did in 1Q slashing costs and returning cash via a massive buyback. The saving grace of Tech could be a shift from growth to cash cow. (And the S&P 500 ex-top 7 has significantly lower duration risk)."

"Nearshoring, underspend, stimulus, and infrastructure needed to support new tech tools is bullish. More for cyclicals/manufacturing, more prevalent in the eq-wtd benchmark," Subramanian said. "We've spent ten years woefully under investing in manufacturing. But think about the grid, the infrastructure, all of the spend we need to support this AI boom."

"Stocks discount expected growth but react to surprises. We swap our earnings revision ratio with a read on the likeliest direction of surprise using macro, BofA analyst and corporate guidance indicators. Last year they suggested a miss, then a beat in 1Q23 and, although recently moderating, remain in neutral to positive territory."

"Sentiment is more bearish than bullish, our Sell-Side Indicator implies +15% over the next 12 months. S&P 500 consensus growth expectations are almost an all-time low, and ex-the Magnificent 7's 15% expectations, long-term growth [expectations] is 5.7%, an all-time low. One in 5 funds have >40% AUM in TMT [technology, media, telecom sector] but are 16% underweight the average stock."

To take advantage of a potential higher stock market into year-end, Subramanian recommended investors focus on the equal-weighted S&P 500, which favors mid-sized companies compared to mega-cap companies.