Sign up to create alerts for Instruments,
Economic Events and content by followed authors
Free Sign Up Already have an account? Sign In
Quotes
All Instrument Types
- All Instrument Types
- Indices
- Equities
- ETFs
- Funds
- Commodities
- Currencies
- Crypto
- Bonds
- Certificates
Please try another search
⏰ React to the Market Faster with Custom, Real-Time News Get Started
Stocks are Cheaper, But Still Not Cheap as Multiples Remain 'Far Too High' - BofA
© Reuters. Stocks are Cheaper, But Still Not Cheap as Multiples Remain 'Far Too High' - BofA
By Senad Karaahmetovic
The Fed has more work to do, Bank of America strategist Savita Subramanian tells clients in today’s note.
History tells us that if the Fed starts to ease prematurely, we may witness a fresh wave of inflation. In this case, "market volatility in the short-run may be a smaller price to pay."
On the valuation front, Subramanian notes that "stocks are cheaper but still not cheap." The S&P 500 is trading at 18.4x trailing EPS after contracting about 30% YTD, which is more during the prior recessions (average is 20%). On the other hand, 16.7x forward (consensus) EPS is in line with multiples seen in the 2010s.
"But if we factor in 8% inflation multiples are far too high, and TINA ("there is no alternative" to stocks) is hard to argue amid a 4% cash yield by early 2023 (house view). These factors warrant, in our view, a lower multiple than what we enjoyed in the 2010s. And if a hawkish Fed means a higher likelihood of recession, this translates into a higher equity risk premium (ERP)," Subramanian told clients in a note.
Bank of America remains bullish on Energy and bearish on Materials with the latter ranking last in the firm's tactical sector framework.
Elsewhere, the dollar strength is likely to keep hurting Tech and Consumer Discretionary.
“Both sectors’ relative sales have negative USD betas, but neither sectors’ valuations reflect this risk, trading at significant premia vs. history,” Subramanian concluded.
Related Articles
Add Chart to Comment
Confirm Block
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
Report this comment
I feel that this comment is:
Comment flagged
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrich the conversation, don’t trash it.
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.