Not a bubble, but the "new normal": why BofA doesn't expect a US stock market crash

The U.S. stock market is hitting record after record, but this may be worth considering a "new normal" rather than waiting for a market crash, Bank of America strategists suggested. A note from a group led by Savita Subramanian was quoted by Bloomberg.

The main U.S. index, the S&P 500, is now trading at statistically high levels across 19 of the 20 metrics tracked by Bank of America, with four of them hitting records, BofA analysts said. But Subramanian said the inherent characteristics of current index participants, including lower earnings volatility andgreaterefficiency, justify such high marks.

"The index has changed dramatically from the 1980s, 1990s and 2000s," Subramanian wrote. - Perhaps we should consider the current multiples as the new normal rather than waiting for a return to the averages of a bygone era."

BofA's analysis goes against the views of other Wall Street participants, who compare current multiples to the dot-com bubble period in the late 1990s and warn of a possible repeat of the crash, Bloomberg noted.

Since April 8, when the index was at its lowest level in 2025, the S&P 500 has added more than 30%, despite the ongoing risks associated with President Donald Trump's trade duties and their potential impact on economic growth and inflation. Moreover, the rise in the index has been sustainable: it has gone 108 sessions without a drop of 2% or more - the longest such streak since July 2024, Bloomberg notes.

The ratio of price to projected earnings over a 12-month horizon (P/E/) of the S&P 500 is now about 22.9. This is a level that has risen higher only twice in the last 25 years: during the dot-com bubble and during the rally in the summer of 2020, when the Fed sharply cut rates to almost zero, the agency writes.

By metrics such as the index's market capitalization to U.S. GDP ratio and a number of P/E multiples, the S&P 500 has never been worth more, Bank of America said in a note. But as Subramanian points out, that's only part of the picture. Today's index composition, she says, is of higher quality than in decades past and may be better prepared to rise in the face of Fed interest rate cuts.

"Buying stocks at these multiples feels uncomfortable," the BofA strategist acknowledged. But, she said, growth in sales, earnings and GDP could "resolve this seemingly unsustainable position," justifying current levels.

On September 23, Fed Chairman Jerome Powell said that the market looks overvalued on a number of indicators. "For many indicators, such as stock prices, estimates are really quite high," he said. However, now this in itself "does not mean increased risks to financial stability," added the head of the Fed.

Powell's calmness was not shared by Yardeni Research analyst Alan Greenspan. He noted that the P/E of the S&P 500 is now only slightly below what it was at the peak of the dot-com bubble, and "black swans" happen unexpectedly, especially in periods when markets are growing and irrational optimism is increasing.

This article was AI-translated and verified by a human editor