[New York, 17th Reuters]-US stock prices have fallen sharply and seem to be affordable. However, it is difficult for investors to determine the appropriate level of stock prices due to strong uncertainty over bond yields, inflation rates, and the Fed’s attitude to raise interest rates.
There is no doubt that the stock price has dropped significantly compared to the beginning of the year. The S & P 500 Comprehensive Index has fallen 23% since the beginning of the year, confirming that it has entered the “bear market”.
However, it is not certain that this is cheap enough. This is because market instability and sudden changes in the macroeconomic environment make it difficult to see the figures that investors use to evaluate ordinary stock valuations, such as corporate profits and US Treasury yields. As a result, some investors have decided to wait and see.
“Unless we have a little better visibility into our interest rate outlook and corporate profit outlook, it’s a little hard to know the fair value of our stocks,” said Samir Samana, senior international market strategist at the Wells Fargo Investment Institute.
According to Refinitiv’s data stream, the expected price-earnings ratio (PER) of US stocks is now 17.3 times, down from 21.7 times at the beginning of the year and approaching the historical average of 15.5 times.
However, according to Refinitiv IBES, the PER is based on the prospect that S & P 500’s profits will increase by nearly 10% this year. Some market participants question whether profit expectations can be maintained as inflation rises and the financial environment tightens.
Wells Fargo Investment’s strategist team expects earnings growth this year to be lower than expected and negative next year. It is expected that a recession will occur from the end of this year to the beginning of next year.
“We encourage investors to consider the potentially tougher economic and earnings environment,” said Chad Morganlander, portfolio manager at Washington Crossing Advisors. “We are fooled by current forecast stock price valuations. That’s what it means. “
In a recent report, Morgan Stanley’s team of analysts said corporate profits were 3-5% lower than expected, resulting in a “more reliable downside support” for the S & P 500 Index at 3400, closing at about 8 on the 17th. It is highly likely that the level will fall below%.
US Treasury yields also play an important role in standard valuation models. As yields rise, the discounted present value of future cash flows declines, making stocks less attractive.
But over the last few weeks, the Fed’s outlook for interest rate hikes has changed and government bond yields have fluctuated unprecedentedly, making this calculation difficult.
Morgan Lander said that rising US Treasury yields, which are “risk-free rates,” are generally “a headwind not only for individual equities but also for equity indices.”
Stock prices are cheap enough, and some investors think it’s time to start looking.
Peter Essel, Head of Portfolio Management at Commonwealth Financial Network, said inflation will subside as household goods and other consumer products become oversupplied and consumer preferences change. Expected. “I think the stock market inflation outlook is wrong,” he said.
“We want to see the signs of slowing inflation,” said Robert Public, senior portfolio manager at Dakota Wealth. “Until then, we’ll continue to wait and see with excess cash.”
(Reporter by Lewis Krauskopf)
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