On February 20, 2026, investors and analysts alike were met with a flurry of news that could shape the course of U.S. markets for months to come. Bank of America’s latest valuation review painted a sobering picture of the S&P 500, while a landmark Supreme Court decision struck down import tariffs imposed by former President Donald Trump, potentially reshaping the landscape for e-commerce giants and the broader market.
According to Bank of America analyst Savita Subramanian, the S&P 500 remains “statistically expensive on 18 of 20 valuation metrics; four are near record highs.” This assessment, shared in a note to clients on Friday, underscores mounting concerns about the sustainability of current market valuations, even as volatility continues to rattle investors. Subramanian’s analysis is hardly an outlier—many on Wall Street have been warning for months that the market’s meteoric rise has left stocks vulnerable to a correction.
Despite these warnings, Bank of America’s year-end 2026 target for the S&P 500 sits at 7,100. That may sound optimistic at first blush, but there’s a catch: the bank expects earnings-driven multiple compression to do much of the heavy lifting, even as its own earnings forecast is “on the high end of the range (+14%), implying significant PE compression.” In Subramanian’s words, the call is “not based on valuation mean reversion” but rather on “compelling fundamental and macro reasons for PEs to compress further—even in Tech.”
One of the most striking revelations in Bank of America’s review is the plight of the software sector. Once the darling of growth investors, software has become 2026’s worst performing industry, down 20 percent year-to-date. Valuations for software stocks are now at decade lows, trading roughly 20% below their long-term average, though they still command a slight premium to the broader index. The culprit? Concerns about artificial intelligence. BofA cautioned investors not to expect “a quick valuation snap back in software or in the S&P 500.”
What’s driving this pessimism? Bank of America outlined five key drivers of lower price-to-earnings (PE) multiples. First, there’s “disruption math”—the idea that price declines tend to lead to earnings downgrades. Second, a coming “glut of issuance” looms as mega-IPOs threaten to flood the market with new equity, potentially diluting existing shareholders. Third, history offers a cautionary tale: strong earnings-per-share (EPS) years have seen PE multiple compression 66% of the time. The remaining factors—rising asset intensity, higher leverage, and “potential index risk from private hiccups”—all point to further downside in valuations, according to BofA.
While these structural headwinds are daunting, they’re not the only forces at play in the market right now. In a separate but related development, it was reported that just eight S&P 500 stocks—including Alphabet, Amazon.com, and Microsoft—now hold a staggering one-third of all cash and short-term investments among S&P 500 companies, based on fresh 2025 data. This concentration of financial firepower in the hands of a few tech behemoths has been a defining feature of the post-pandemic market, fueling both optimism and anxiety about the market’s long-term health.
But it’s not just cash hoarding that has investors talking. The Supreme Court delivered a seismic ruling by striking down import tariffs imposed by former President Donald Trump. According to Investors.com, this decision could offer long-awaited relief for e-commerce companies, many of which have struggled with the increased costs and logistical headaches brought on by the tariffs. Shares of Amazon and other e-commerce stocks climbed in the wake of the news, reflecting hopes that lower import costs could boost margins and spur growth across the sector.
The Supreme Court’s decision is particularly significant for companies like Amazon, which rely on a vast global supply chain to deliver goods quickly and cheaply to consumers. The removal of tariffs could ease cost pressures, allowing these firms to reinvest in technology, logistics, and customer experience. For Alphabet and Microsoft, both of which have significant exposure to international markets, the ruling could also provide a tailwind, though perhaps less directly than for pure-play e-commerce firms.
Still, the broader market faces headwinds that go well beyond trade policy. As Bank of America’s Subramanian noted, “Software is 2026’s worst performing industry,” and the sector’s struggles have been magnified by persistent doubts about the near-term potential of artificial intelligence. While AI has been heralded as a transformative force, its impact on earnings and valuations remains a subject of fierce debate among analysts and investors. Some worry that the hype has outpaced the reality, leading to inflated expectations and, ultimately, disappointment.
Meanwhile, the risk of a “glut of issuance” from mega-IPOs threatens to further depress valuations. When a wave of new shares hits the market, existing investors can find themselves diluted, and prices may fall as supply outstrips demand. This dynamic has played out before, and history suggests it’s not easily shrugged off. As BofA pointed out, “strong EPS years saw PE multiple compression 66% of the time,” a reminder that even robust earnings growth isn’t always enough to keep valuations elevated.
Adding to the complexity is the rising asset intensity and leverage across the market. Companies are investing heavily in new technologies, infrastructure, and capacity, but these investments come with risks. Higher leverage can amplify both gains and losses, while increased asset intensity can make firms more vulnerable to economic downturns or shifts in consumer demand. And then there’s the specter of “index risk from private hiccups”—the possibility that problems in private markets could spill over into public equities, destabilizing the broader index.
For investors, the message from Bank of America is clear: caution is warranted. While the S&P 500 has defied gravity for much of the past year, the underlying fundamentals suggest that the road ahead could be bumpier than many expect. “Do not expect a quick valuation snap back in software or in the S&P 500,” BofA warned, urging clients to temper their expectations and prepare for the possibility of further multiple compression.
At the same time, the Supreme Court’s decision to strike down Trump-era tariffs offers a glimmer of hope for e-commerce companies and the broader market. The potential for lower costs and improved profitability could help offset some of the structural challenges identified by Bank of America, at least in the near term. But as always, the devil is in the details—and investors will be watching closely to see how these developments play out in the months ahead.
With a market perched at historic valuation highs, a handful of tech giants sitting on mountains of cash, and regulatory winds shifting in real time, the only certainty is uncertainty itself. Investors, analysts, and executives alike will need to stay nimble, vigilant, and—perhaps most importantly—humble as they navigate the ever-changing landscape of 2026.