S&P 500 still rich on 18 of 20 measures, BofA says

Investing.com -- The S&P 500 remains broadly expensive despite recent market volatility, according to a new valuation review from Bank of America.

Analyst Savita Subramanian wrote in a note on Friday that the index “is statistically expensive on 18 of 20 valuation metrics; four are near record highs,” underscoring why BofA continues to expect earnings-driven multiple compression.

BofA maintains one of Wall Street’s lowest year-end 2026 targets for the benchmark at 7,100, but Subramanian highlighted that the bank’s earnings forecast is “on the high end of the range (+14%), implying significant PE compression.”

She added that the call is “not based on valuation mean reversion” but instead on “compelling fundamental and macro reasons for PEs to compress further— even in Tech.”

Software is said to stand out as a newly defined value sector, according to BofA.

Subramanian noted that Software is “2026’s worst performing industry,” down 20 percent year-to-date, with valuations at decade lows on artificial intelligence concerns.

The group trades “~20% below the l-t average,” though still at a slight premium to the index, and BofA cautioned not to expect “a quick valuation snap back in software or in the S&P 500.”

BofA outlined five drivers of lower multiples, including “disruption math,” where price declines typically lead earnings downgrades, and a coming “glut of issuance” as mega-IPOs threaten to expand equity supply.

The bank also cited history, saying strong EPS years “saw PE multiple compression 66% of the time.” Rising asset intensity, higher leverage and potential “index risk from private hiccups” round out the factors pointing to further downside in valuations.

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