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Investing.com -- The S&P 500 is statistically expensive across every valuation metric tracked by Bank of America (BofA), but what matters more now is how markets are digesting potential policy changes.
According to BofA’s latest equity and quant strategy report, investors have increasingly priced in the impact of tariffs—but not the proposed “Big Beautiful Bill.”
“Stocks with pure domestic sales exposure re-rated relative to their foreign exposed counterparts after Liberation Day,” BofA strategists led by Savita Subramanian write, noting they traded at a 15% premium at one point, compared to a ~5% historical discount.
Although multiples have pulled back slightly, domestically focused companies still trade above their historical relative valuations.
However, the market appears more hesitant about the Big Beautiful Bill, U.S. President Donald Trump’s proposed legislative package. BofA points out that “baskets constructed to align with various aspects of the Big Beautiful Bill reveal less positive (and in many cases negative) reactions.”
Since the bill’s draft was introduced, related screens—including those tied to personal tax cuts, bonus depreciation, and domestic manufacturers—have all underperformed their sector peers.
Valuations for stocks expected to benefit from “more take-home pay” also suggest little optimism. These names, which have historically performed well during periods of real wage growth, “trade at a discount to their Trump 1.0 to Trump 2.0 average multiple and underperformed peers since the introduction of the bill.”
Likewise, BofA says that companies potentially supported by “Made in America” provisions—such as those benefiting from deductions on domestic R&D and bonus depreciation—have lagged since the bill’s rollout and remain below long-term average earnings multiples.
If no clear solution emerges to address the ballooning deficit driven by DOGE department, tariffs, and the Big Beautiful Bill, BofA warns that long rates could rise on sovereign risk. Still, “hawks have the opportunity to protect against rising rates,” and strategists note that “stocks that benefit most from rising rates are trading in line with historical multiples.”