Stock valuations are falling fast, giving investors a potential opportunity to snap up stocks that may have been overvalued just a year ago.
Take industrial bellwether
Now, with inflation at a 40-year high and the
This week
The ratio of stock prices relative to a company’s earnings is now hovering close to a 10-year average for the broader S&P 500 index.
"There’s some reasonable values out there,” said
The drop in valuations has come from two fronts throughout the year. Earnings growth has been steadily shrinking for the entire S&P 500 since the beginning of the year. Company valuations have also been hit hard by the Fed’s aggressive policy to raise interest rates in its effort to slow economic growth and tame inflation. Higher interest rates make stocks generally less attractive, while increasing yields on areas of the market that are traditionally considered less risky, like bonds.
The
Analysts have said that valuations have some more room to fall in the months ahead. Stubbornly hot inflation has been slowly squeezing consumer spending and costs for businesses throughout 2022. Companies have seen earnings drop significantly and forecasts for the rest of the year and into 2023 remain subdued.
“We’re seeing a tremendous number of advisers putting money into Treasurys because that can pay to wait,” McMillan said. “That will probably keep equities constrained.”
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