![A Better Way to Bet on Stocks Right Now, According to Bank of America](https://news7g.com/wp-content/uploads/2024/08/108018754-1723226616649-Traders-TF-Photo-AJ-20240809-PRESS-3-780x470.jpg)
There’s a better way to invest money in the stock market right now, according to Bank of America. Savita Subramanian, the firm’s head of U.S. equity and quantitative strategy, recommends investing in the equal-weighted S&P 500 instead of the current cap-weighted S&P 500 index, saying valuations there are more attractive. The S&P 500 is up 14% this year, even after recent volatility. The equal-weighted S&P 500, on the other hand, is up less than 7%. The valuation of the equal-weighted S&P 500 is “approaching record discounts,” Subramanian wrote on Wednesday. “Even as large-cap companies led the market lower during the recent pullback, the equal-weighted S&P 500 is trading at a huge discount to the S&P 500, approaching tech bubble levels.” .SPXEW YTD mountain S&P 500 Equal Weight The strategist expects the equal-weighted benchmark to prove a way to capture the expansion in stock performance from the large-cap companies that dominated the rally earlier this year, especially since she predicts that earnings — not price-to-earnings multiples — will be the “primary driver” of future returns. She said the S&P 500, which lacks the so-called “Big Seven” stocks, is on track for 8% year-over-year earnings growth in the second quarter, the first growth period for the rest of the market since late 2022. Subramanian said other parts of the market look like even better bargains. For example, she noted that the large-cap S&P 500 Equal Weight is 8% more expensive than the small-cap Russell 2000 index of small-cap stocks. But the S&P 500 Equal Weight has another advantage: It’s inherently less risky, since large-cap companies are easier to trade than the small-cap market. That could also help the equal-weighted benchmark outperform. “Don’t forget the risk: SPW has a lower beta (0.9) than the capitalization-weighted S&P 500 (1 by definition), and a much lower beta than the Russell 2000’s 1.1 beta,” Subramanian said. “Based on current equity risk premiums, the equal-weighted S&P 500 would trade at a premium to the S&P 500 and would trade at a 12% premium to the Russell 2000, all other things being equal.” One way to play the BofA long is through the Invesco S&P 500 Equal Weight ETF (RSP).