BofA: Bear Market Signal Drops to 60%, S&P 500 Ten-Year Return Could Be -3%
nashnova research
Bank of America's latest report notes the S&P 500 forward P/E has compressed from 22× to 20×, improving the short-term entry point, but the bank's long-term model projects a -3% annualized return over the next decade, and bear-market signals — though easing from 70% to 60% — still leave limited upside.
Valuation dropped from 22× to 20× — is it actually cheap now?
The S&P 500 forward P/E — the price divided by expected earnings over the next twelve months — fell from 22× at the start of the year to 20×.
This means → prices barely moved, but earnings estimates surged. Earnings pulled the multiple down, not a price crash.
The numbers: forward EPS growth exceeds 20%, while the index is up only about 12% year-to-date — earnings growth is running nearly twice as fast as the stock price.
Tech and energy saw the steepest P/E compression, yet both posted strong forward EPS growth.
A -3% ten-year return — what is BofA's long-term model saying?
BofA uses a "normalized trailing P/E" model — smoothing out short-term profit swings to gauge long-run valuation — and it points to a -3% annualized return for the S&P 500 over the next decade.
In plain terms = buy the S&P 500 today, hold for ten years, and this model says you lose 3% a year on average — not a thin gain, an outright loss.
By contrast, the equal-weight index — where every stock counts equally, so mega-caps don't dominate — is projected at roughly +3% annualized over the same period.
This reflects a concentration problem: the largest stocks are priced too richly, dragging down the cap-weighted index's long-term outlook.
Bear-market signals fell from 70% to 60% — is the danger over?
BofA tracks a proprietary set of "bear-market signposts" — warning indicators that historically fire before market declines. In late May, 70% were triggered, pushing into the "red alert zone"; by August, the figure dropped to 60%.
The main driver: the Fed's latest Senior Loan Officer Opinion Survey (SLOOS) improved, no longer signaling tightening corporate credit conditions.
Yet history shows that when 60% of signposts are triggered, the median twelve-month return is just +3% — upside remains limited.
This means → the signal moved from "high danger" to "elevated caution." That is not safety — it just means the worst-case scenario stepped back one notch.
Earnings quality and corporate leverage — what else is deteriorating?
BofA's report also flags that earnings visibility and corporate leverage have both shifted from "healthy" to "deteriorating."
In plain terms = profit quality is weakening and borrowing is rising — these two underpin valuations. When the foundation loosens, the valuation built on top cannot hold.
The bottom line: valuation compression improves the short-term entry point, but long-term returns remain under pressure. Whether bear-market signals continue to ease depends on where credit conditions and earnings quality go from here.
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