The S&P 500’s “egregiously expensive.”

That’s the bad news. The good news is, you shouldn’t necessarily worry about it.

So suggested BofA’s Savita Subramanian in a Wednesday note.

“It’s hard to be bullish based on valuation,” she conceded, addressing widespread concerns that US equities are either in, or entering, bubble territory thanks in no small part to “Magnificent 7” performance.

That theme (the Magnificent 7 bubble theme) is ubiquitous to the point of exhaustion across analyst commentary and financial media coverage. Part and parcel of such commentary and coverage is the implicit notion that today’s indexes can be compared to yesteryear’s. Subramanian isn’t so sure.

“The S&P 500 is statistically expensive on 19 of 20 metrics and is trading at a 95%ile price to trailing earnings ratio based on data back to 1900,” she began.

The table shows the breakdown. Pick a metric, any metric. Stocks are expansive.

“Does this portend a market collapse?” Subramanian wondered. Her answer was a qualified “No.”

The word “collapse” almost always means a sharp, sudden drawdown that unfolds in the near-term. Valuations are “almost all that matters” over the long-term, as Subramanian reminds investors frequently, but over short horizons, “factors like sentiment and surprise matter more,” she said Wednesday, before getting quickly to the point: Subramanian, who has BofA’s house call, said that “at a basic level,” comparing an index “to its younger selves” may not be valid.

Her rationale for questioning the validity of such historical comparisons was straightforward: It’s just not the same index. Today’s S&P is “half as levered, is higher quality and has similar or lower earnings volatility than in prior decades,” she wrote, adding that although the ERP could rise for the Magnificent 7 (which “trades at half the equity risk premium of the remaining 493”), it could fall for the majority of companies, “especially old economy cyclicals that grew lean and disciplined after being starved of capital for 10+ years.”

According to Subramanian, anyone who assessed the index on a classic fair value approach using longer run EPS trends and cost of equity might’ve missed the mark, where that means such a person would’ve “grossly underestimated S&P 500 returns in recent years.”

A key point from Wednesday’s note was that the S&P 500 45 years ago was 70% asset-intensive manufacturing, financials and real estate companies. Today, it’s 50% asset-light tech and healthcare. That matters for any number of obvious reasons.

Subramanian also suggested that going forward, the macro and operating environment may invite comparisons to the “Post-Volcker efficiency era” from 1982 to 1998, a stretch defined by “monstrous gains in labor efficiency via robotics and automation.” The current regime “seems similar,” BofA suggested, “with productivity driven measures and corporates focused on efficiency and AI.” If that’s the right comparison, the risk premium should be low.

The bottom line from Subramanian is that the “likelier direction for the S&P from here is up.” In what she called a “realistic good case scenario” that finds the ERP “for most of the S&P 500 ex-Mag 7 settl[ing] close to the 80s-90s analog,” fair value for the index might be as high as 5,500.