S&P 500 valuation suggests 1-2% price return over next decade: BofA
is currently considered statistically expensive across 19 of 20 valuation metrics, indicating limited long-term price growth, Bank of America said in a Monday report.
“This is not new news: we have seen a more compelling valuation case for the equal-weighted S&P 500 since last July which now trades at a historic discount to the cap-weighted index,” BofA strategists led by Savita Subramanian said in the note.But, this is only one part of the story, BofA notes, highlighting that dividends remain an important part of total returns.
“If dividends reverted to their average contribution, assuming reinvestment, the equal-weighted S&P 500’s total return would clear 8.3% p.a. over the next decade," the note points out. Another important consideration is the shift in the corporate landscape. Today's market is more asset-light, labor-light, and debt-light compared to past cycles. BofA highlights that this shift could justify higher valuation multiples than history suggests, possibly explaining part of the current premium.
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