The S & P 500 appears pricey, but Bank of America isn’t sweating it. “The index looks statistically expensive relative to its own history on all 20 of the valuation metrics we track,” Savita Subramanian, equity and quant strategist for the firm, said in a Thursday note to clients. Subramanian said valuation multiples have grown during the relief rally seen after stocks initially plunged in the wake of President Donald Trump’s tariff policy unveiling in early April. With the S & P 500’s recovery, she said the index now trades at 21-times forward earnings, which is around 35% above its historical average. The S & P 500 is now up around 2% in 2025. .SPX YTD mountain The S & P 500 in 2025 However, Subramanian described putting today’s S & P 500 against its history as an apples-to-oranges comparison. That’s because of how much the benchmark index has changed, she said. For example, asset-intensive manufacturing makes up less than 20% of the index today, compared to almost 70% in 1980. She said the current S & P 500 is higher quality and has higher margins, while also offering lower leverage and earnings volatility. Subramanian also said the U.S. stock market’s premium to the rest of the world is “likely justified.” She said the U.S.’ quality and balance sheets, as well as the market’s growth potential and risk are all “statistically superior.” The U.S. “has, and is forecast to continue to offer, roughly double the long-term growth potential of Asia and Europe, with lower earnings volatility than Europe, plus higher free cash flow per share and a lower percentage of non-earners vs. both Asia and Europe,” she wrote to clients. She also listed “structural advantages” tied to the U.S. market, which include its energy independence, the fact that the U.S. dollar is the reserve currency and what she called “unparalleled liquidity.” Additionally, Subramanian said the current leadership of the U.S. tech sector is a plus. For investors looking at the U.S., Subramanian said Bank of America’s models give preference to the communication services, utility and technology sectors.
