Market Preview: A Welcome Correction?

NEW YORK (TheStreet) -- Judging by where U.S. stock futures were languishing early Monday morning, this wasn't looking like a very good day to boost your year-end target for the S&P 500.

But when the dust cleared, Wall Street had answered the weekend's political fireworks in Greece and France with a yawn, and the decision by Bank of America Merrill Lynch strategist Savita Subramanian to boost the firm's expectation for the index to 1450 from 1400 didn't seem quite so ill-timed.

That's not to say Subramanian doesn't see more turbulent days ahead.

"Corrections of 10%+ occur nearly once a year on average, and given the ongoing tail risks surrounding Europe and our more cautious view on growth for the rest of 2012, we think the likelihood of another correction may be elevated," she wrote. "Our expectation that we avoid a recession in the US (even if it requires another round of quantitative easing) suggests fundamental support for the S&P 500 near 1150 (assuming an 800bp [basis points] equity risk premium vs. our assumed 650bp), roughly where the market bottomed last autumn."

On the plus side, Subramanian offered up four reasons why the eventual sell-off in the broad market should be a bit more restrained in 2012 than what was seen in the past two years.

"[W]e would expect any potential correction to be tempered by the following: (1) sentiment is very low, (2) cash levels are already very high, (3) April had the biggest equity outflows in 16 years and (4) valuation is even more compelling than it was at this time during the prior two years," she said.

While the debate about the wisdom of "Sell in May and go away" remains a hot topic after stocks delivered their poorest weekly performance of 2012 last week, Subramanian's opinion is that investors need to look further out than what may or may not play out over the summer.

"Current levels of sentiment and valuation suggest that investors are likely to earn healthy equity returns in the long term," she wrote. "Long-term investors can take advantage of this by extending their time horizons and using pullbacks and corrections as opportunities to build equity positions rather than decrease them."

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