NEW YORK (Reuters) – U.S. stock valuations are tumbling in the wake of the coronavirus-fueled market rout, but determining when equities are cheap enough to buy is a tricky proposition.
FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) near the close of trading in New York, U.S., March 12, 2020. REUTERS/Brendan McDermid
The S&P 500’s price-to-earnings ratio, based on earnings estimates for the next year, has dropped from over 19 in late February to 14.2 as of Wednesday, according to Refinitiv data.
The decline in forward P/E marks a drop from the highest level since about mid-2002 to a level below the index’s historic average.
But the numbers may be misleading. For example, many market watchers say overall earnings estimates have yet to adjust low enough to account for the economic fallout from the coronavirus pandemic. That adjustment would mean stocks, based on price-to-earnings valuations, are less attractive than they appear.
“It’s a little bit difficult to look at the P/E even for this year. The estimates are going to come down; they are still too high,” said James Ragan, director of wealth management research at D.A. Davidson. “It’s just so hard to even figure out what the im