A long-time bear is looking on the bright side and gives 6 reasons why the stock market could rise as much as 36%

• Bank of America's Savita Subramanian has been a noted bear on stocks this year, expecting a 8% decline in the S&P 500 into year-end.
• But in a Tuesday note, Subramanian played devil's advocate and explored the bright side of stocks going forward.
• These are the six factors that could drive 36% more upside in stocks, according to Bank of America.

Stock market investors have been well rewarded in 2021, with the S&P 500 notching more than 50 record closing highs and seeing a year-to-date return of more than 24%.

The record rally now has some bearish market strategists pondering "the bright side" of stocks as their price targets lag further and further behind the benchmark indexes. That seems to be the case for Bank of America's equity and quant analyst Savita Subramanian, who has held a bearish stance on stocks due to high valuations and bubbling investor sentiment.

Subramanian has a year-end price target of 4,250 for the S&P 500, representing downside potential of about 8% from current levels. That view remains bearish into next year, with Subramanian expecting a 2022 year-end price target of 4,600, or potential downside of about 0.5% from current levels. Additionally, Subramanian has forecasted negative equity returns over the next decade.

But in a Tuesday note, Subramanian is playing devil's advocate and looking at what could continue to drive stocks higher despite her bearish call.

These are the six factors that could help drive 36% more upside in stocks, according to Bank of America.

1. "It's dangerous to underestimate corporate America."

"Today's labor shortages and onshoring initiatives would likely incentivize companies to automate, driving further efficiency gains. Consumer and Industrials sectors would stand to benefit the most from automation gains, given their higher labor intensity. Semis, select Tech and Industrials would likely benefit most from increased automation spend."

2. "Tax hit could be manageable."

"A watered down infrastructure spending plan has Dems slimming down the proposed tax bill to just 15% minimum and 1% tax on corporate buybacks, translating into a ~1% hit to EPS (Exhibit 7) vs. the previous bill's estimated ~5%."

3. Stocks provide yield and protection against inflation.

"Commodities offer inflation-protection, bonds offer income, but neither offers both. Stocks sit in the sweet spot offering inflation protection as well as yield."

4. Government indebtedness has seen positive endings in the past.

"Government debt/GDP is north of 1.2x GDP (an all-time high), well above corporate/household debt/GDP. But prior peaks in gov't debt/GDP ended well. In the former, GDP outpaced debt growth, and equities saw better returns during and following periods of elevated government indebtedness. And going forward, based on Biden's modified Build Back Better plan, our economists believe deficit expansion will be less than expected."

5. "Potential small cap bull market."

"A small cap bull market could also suggest upside risk to our long-term S&P 500 forecast: S&P 500 monthly returns have been positive more frequently during months of small cap leadership (hit rate of 72% vs. 63% for all months since 1979)."

6. "The positive side of record equity duration."

"We cite S&P 500 record equity duration of ~35 yrs as a negative given our house view that rates will rise from here. A rising discount rate is more negative than ever- a 1% increase in the cost of equity could drive the S&P 500 to ~3,600. But conversely, a 1% drop would push the S&P 500 to 6,300. Convexity matters here, as risks are asymmetric: 3,600 represents a 21% drop but 6,300 represents a 36% gain."