The S&P 500 is currently at historic highs, with valuations significantly above average. However, experts like Bank of America’s Savita Subramanian believe that the Trump administration’s push for deregulation could provide a pathway for continued market growth.
Subramanian noted that the S&P 500 is more expensive than average across 19 out of 20 indicators monitored by her team. This includes a forward price-to-earnings ratio of 22.1, nearly 40% above the historical average, and an enterprise value to sales ratio of 3.36.
Despite this, Subramanian points out that deregulation could lead to cost reductions and efficiency improvements in industries that are heavily regulated. She identified consumer goods, commodities, financials, and transport sectors as areas poised for gains from reduced regulation.
A study by Subramanian found a clear inverse relationship between the number of regulations and forward P/E ratios: “Generally, more expensive stocks are less regulated.” Additionally, a more permissive environment for mergers and acquisitions could enhance financial sector returns while benefiting capital efficiency in smaller sectors like staples and small to mid-sized healthcare.
However, despite deregulation being highlighted as a priority by Trump and his administration, the specifics of these changes remain uncertain. The Securities and Exchange Commission appears more receptive to cryptocurrency under Trump, while the Federal Trade Commission and Department of Justice plan to uphold Biden-era rules for corporate merger reviews.
Source: https://www.dimsumdaily.hk/sp-500-valuations-high-but-deregulation-could-fuel-market-rally