Currency strategists at Bank of America (BofA) are scratching their heads. According to analysts, even as corporate profits decline, the popular S&P 500 index remains expensive.
The bank's specialists noted that the S&P 500 fell by 7% from its previous peak, while earnings estimates for 2025 were revised down by 4 percentage points.
Despite these developments, BofA analysts argue that the index remains “statistically expensive by almost every measure.” The index has come under pressure due to rising political instability and increased exposure to asset-heavy operations and margin volatility among US businesses.
BofA’s currency strategists also observed a shift in investor preferences, with European investors favoring local equities and overlooking American ones. The bank emphasized that US equities had become twice as expensive as their European counterparts, noting that the S&P 500 was trading at 20 times forward earnings, compared to just 14 times in Europe—an evaluation that represents double the historical average premium.
Nevertheless, BofA points out several structural advantages of US equities, such as clean corporate balance sheets, high corporate transparency, and the dollar’s reserve currency status.
Even so, analysts caution that emerging risks could weigh on US stocks, particularly within the tech sector. That said, BofA maintains a long-term confidence in American equities, especially large-cap names. The bank concluded that a sustained flow of capital could trigger an overly bullish bias toward European equities once the tariff uncertainty cleared.
