The stock market is still expensive on 14 of 20 historical measures

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S&P 500 (SP500) (NYSEARCA: SPY) valuations have fallen, but remain mostly above historical averages, according to BofA Securities.

In 14 or 20 measures, the S&P is above average valuations (see chart below).

“The stream a trailing P/E of 18.1x compares to the 12.3x average at all-time bear market lows,” strategist Savita Subramanian wrote in a note. “And the most bullish metric of the 2010s turned bearish: the ratio of the S&P 500 div. yield vs Tsy 10 years. yield (NYSEARCA:TBT) (TLT) fell precipitously to just 0.5x from the 0.7x average (COVID peak was 3.2x).”

“One metric on which equities still look attractive is relative to bonds based on our normalized ERP. Assuming the overall cost of capital remains unchanged, a move in real rates to 1.75% (+1.2ppt to from here) would bring the ERP back to the historical average,” Subramanian said.

Stick to energy, avoid discretionary consumption

Crude (CL1:COM) (USO) prices have fallen due to demand destruction, but BofA still sees a path from Brent (CO1:COM) (BNO) to hit $150 a barrel if Russian exports contract strongly.

Energy (XLE) is No. 1 atop the 2022 BofA Tactical Framework.

Consumer Discretionary (XLY) is at the bottom.

“As evidenced by recent retailer earnings, consumers’ shift from discretionary items to basic necessities presents additional risk,” Subramanian said. “Additionally, Energy and Consumer Discretionary earnings have historically been negatively correlated” at -53%.

Credit Suisse says cyclical stocks look cheap now.

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