Bank of America warns that S&P 500 valuations point to negative returns over the next decade

In a September 14 client note, the bank reported that the S&P 500’s normalized price‑to‑earnings ratio — measuring stock prices against average earnings over several years — is currently 32, suggesting an average annual return of -3% for the index over the next ten years. The bank recommends using the equal‑weighted version of the S&P 500 as a more attractive way to gain market exposure during the upcoming decade. This equal‑weighted index shows a normalized PE ratio of 25, indicating expected annualized returns of about +3% over the next ten years. This valuation metric has proven highly reliable for predicting long‑term performance; over a ten‑year span it accounts for roughly 80% of the S&P 500’s total returns. The normalized PE ratio is one of ten valuation measures tracked by Bank of America, and six additional metrics — such as the Shiller PE, price‑to‑book ratio, and market‑cap‑to‑GDP — also point to negative returns for the S&P 500 by 2036. Overall, the ten valuation signals average a projected return of -1.4% for the S&P 500. Even with these cautionary signals, the bank argues that the cap‑weighted index may prove more robust than the valuations suggest, noting that “projected returns based on historical valuations could be overly harsh.” This resilience stems from factors such as stocks outperforming bonds in stagflationary conditions and the strong fundamentals of today’s S&P 500 companies, which feature low debt and steady earnings. You are currently following this author. To stop following, click the unsubscribe link in the email you received. William Edwards is a senior investing reporter at Themoneytimes, focusing on the US stock market and the broader economy. He has spoken with many influential market figures, including Joseph Stiglitz, Jeremy Grantham, Rick Rieder, Rob Arnott, Savita Subramanian, Nouriel Roubini, Ken Rogoff, Mike Wilson, Claudia Sahm, Albert Edwards, Andrew Ross Sorkin, Ben Snider, and others. William created Themoneytimes’s annual Oracles of Wall Street list for 2023, 2024, and 2025, showcasing top recommendations from strategists, economists, and analysts. He also writes Themoneytimes’s $10,000 investment column and contributes to the First Trade newsletter. Previously, he reported on the US economy for Bloomberg News from Washington, DC, and provided TV technology coverage for CNBC in San Francisco. His reporting experience also includes stints in France, Germany, and Tunisia, and he currently resides in New York.