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Stock swoon resets valuations but recession risk, rates cloud outlook

Friday, January 6, 2023
Stock swoon resets valuations but recession risk, rates cloud outlook © Reuters. FILE PHOTO: A trader walks by the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., May 19, 2022. REUTERS/Andrew Kelly
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By Lewis Krauskopf

NEW YORK (Reuters) - U.S. stocks are starting 2023 at much cheaper levels after Wall Street's biggest swoon in 14 years but the potential for a recession combined with higher interest rates means equities may not be priced low enough to lure investors.

Since the S&P 500 reached an all-time high a year ago, the index's price-to-earnings ratio has fallen over 20% from its peaks to levels closer to historic averages.

Some investors still see reasons to be skeptical. Stocks may be more expensive than they appear if current earnings estimates do not fully account for any economic slowdown, while any downturn could further dampen what investors are willing to pay for equities.

"Valuations have corrected, but they are still not compelling relative to the macro challenges that exist," said Keith Lerner, co-chief investment officer at Truist Advisory Services, which rates fixed income as more attractive than equities.

"At best, you can say that valuations are average," Lerner said, "but the question I think you have to ask yourself is average enough given elevated recession risk?"

The S&P 500 tumbled 19.4% in 2022, as the Federal Reserve's aggressive rate hikes designed to tamp down 40-year high inflation punished asset prices. Through the first few days of the new year, the benchmark stock index slipped 0.8%.

The market's 2022 slide cut the ratio of price to forward earnings estimates to around 17 from about 21.7 a year ago, according to Refinitiv Datastream. The current level remains slightly above the index's 15.8 average of the past 20 years.

GRAPHIC: Moderating stock market values (https://fingfx.thomsonreuters.com/gfx/mkt/lgpdkkrjrvo/Pasted%20image%201672943959310.png)

Valuations may still be too high if a recession comes to pass, as many on Wall Street expect. Fund managers in last month's BofA Global Research survey cited a deep global recession and persistently high inflation as the market's biggest risks, with a net 68% forecasting a likely downturn in the next year.

UBS economists forecast a recession from the second through fourth quarters of this year, "as rate hikes push a vulnerable economy into contraction."

"As growth deteriorates considerably into Q2/Q3, we assume the multiple falls toward 14.5 (times)," UBS equity strategists said in a note. Combined with an expectation of weakening earnings estimates, that would lower the S&P 500 to 3,200, UBS said, roughly 16% below current levels.

Any recession could pressure corporate profits more than is factored into projections. Consensus analyst estimates call for a 4.4% increase in earnings this year, according to Refinitiv IBES.

Yet during recessions, earnings fall at an average annual rate of 24%, according to Ned Davis Research. If estimates are overly rosy, that means the P/E ratio is higher than it appears, making stocks seem less attractive.

The profit picture will start to become clearer as fourth-quarter earnings season kicks off next week. Reports are due from banks Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C), healthcare titan UnitedHealth Group (NYSE:UNH), asset manager BlackRock (NYSE:BLK) and Delta Air Lines (NYSE:DAL).

The 2022 surge in interest rates also could undermine stock valuations by making relatively safe assets like U.S. Treasuries more attractive alternatives. Yields on benchmark Treasuries jumped to 15-year highs last year after a long period when relatively safe assets yielded little.

"The problem with the valuation analysis right now is the old saying was there is no alternative to stocks because interest rates were so low," said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.

With interest rates "significantly higher than they were the last decade ... that higher multiple you used to pay for stocks may not be as justified," he added.

The equity risk premium, or extra return investors expect to receive for holding stocks over risk-free government bonds, has become less favorable over the past year, according to Truist's Lerner.

The current premium coincides with a 12-month excess return of 3.5% for the S&P 500 over the 10-year Treasury note, but "downgrades to the economy and earnings remain risks," Lerner said in a note.

Thursday's closely watched December consumer price index report could influence the scope of the Federal Reserve's rate hikes this year.

Investors are searching for bargains. State Street (NYSE:STT) Global Advisors prefers mid-cap and small-cap stocks to their large-cap counterparts, said State Street's chief investment strategist Michael Arone.

The S&P 400 midcap index and the S&P 600 small-cap index are both trading at around 13 times forward earnings estimates, well below their respective long-term averages, according to Refinitiv Datastream.

"As you move down in market capitalization, the valuations become more attractive," Arone said.

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04-10-2023 20:24:09 (UTC+7)

EUR/USD

1.0514

+0.0049 (+0.47%)

Summary

↑ Sell

Moving Avg:

Buy (3)

Sell (9)

Indicators:

Buy (0)

Sell (7)

EUR/USD

1.0514

+0.0049 (+0.47%)

Summary

↑ Sell

Moving Avg:

Buy (3)

Sell (9)

Indicators:

Buy (0)

Sell (7)

GBP/USD

1.2158

+0.0083 (+0.69%)

Summary

↑ Sell

Moving Avg:

Buy (4)

Sell (8)

Indicators:

Buy (0)

Sell (7)

USD/JPY

148.99

-0.03 (-0.02%)

Summary

↑ Buy

Moving Avg:

Buy (11)

Sell (1)

Indicators:

Buy (9)

Sell (0)

AUD/USD

0.6332

+0.0031 (+0.49%)

Summary

↑ Sell

Moving Avg:

Buy (4)

Sell (8)

Indicators:

Buy (0)

Sell (9)

USD/CAD

1.3733

+0.0025 (+0.18%)

Summary

↑ Buy

Moving Avg:

Buy (12)

Sell (0)

Indicators:

Buy (7)

Sell (0)

EUR/JPY

156.63

+0.66 (+0.42%)

Summary

Sell

Moving Avg:

Buy (6)

Sell (6)

Indicators:

Buy (0)

Sell (9)

EUR/CHF

0.9626

-0.0014 (-0.15%)

Summary

↑ Sell

Moving Avg:

Buy (0)

Sell (12)

Indicators:

Buy (0)

Sell (8)

Gold Futures

1,839.55

-1.95 (-0.11%)

Summary

↑ Sell

Moving Avg:

Buy (0)

Sell (12)

Indicators:

Buy (0)

Sell (8)

Silver Futures

21.365

-0.012 (-0.06%)

Summary

↑ Sell

Moving Avg:

Buy (4)

Sell (8)

Indicators:

Buy (0)

Sell (9)

Copper Futures

3.5980

-0.0230 (-0.64%)

Summary

↑ Sell

Moving Avg:

Buy (0)

Sell (12)

Indicators:

Buy (0)

Sell (9)

Crude Oil WTI Futures

87.52

-1.71 (-1.92%)

Summary

Neutral

Moving Avg:

Buy (5)

Sell (7)

Indicators:

Buy (6)

Sell (1)

Brent Oil Futures

89.25

-1.67 (-1.84%)

Summary

↑ Sell

Moving Avg:

Buy (1)

Sell (11)

Indicators:

Buy (8)

Sell (0)

Natural Gas Futures

3.046

+0.097 (+3.29%)

Summary

Buy

Moving Avg:

Buy (9)

Sell (3)

Indicators:

Buy (5)

Sell (0)

US Coffee C Futures

148.35

-0.40 (-0.27%)

Summary

↑ Buy

Moving Avg:

Buy (12)

Sell (0)

Indicators:

Buy (8)

Sell (1)

Euro Stoxx 50

4,113.35

+17.76 (+0.43%)

Summary

↑ Sell

Moving Avg:

Buy (2)

Sell (10)

Indicators:

Buy (1)

Sell (8)

S&P 500

4,229.45

-58.94 (-1.37%)

Summary

↑ Buy

Moving Avg:

Buy (12)

Sell (0)

Indicators:

Buy (9)

Sell (1)

DAX

15,124.85

+39.64 (+0.26%)

Summary

↑ Sell

Moving Avg:

Buy (1)

Sell (11)

Indicators:

Buy (0)

Sell (7)

FTSE 100

7,450.67

-19.49 (-0.26%)

Summary

↑ Sell

Moving Avg:

Buy (0)

Sell (12)

Indicators:

Buy (0)

Sell (7)

Hang Seng

17,186.00

-90.00 (-0.52%)

Summary

↑ Buy

Moving Avg:

Buy (12)

Sell (0)

Indicators:

Buy (6)

Sell (1)

US Small Cap 2000

1,724.80

-32.02 (-1.82%)

Summary

Neutral

Moving Avg:

Buy (11)

Sell (1)

Indicators:

Buy (3)

Sell (5)

IBEX 35

9,151.75

-13.75 (-0.15%)

Summary

↑ Sell

Moving Avg:

Buy (0)

Sell (12)

Indicators:

Buy (0)

Sell (8)

BASF SE NA O.N.

41.945

+0.185 (+0.44%)

Summary

↑ Sell

Moving Avg:

Buy (0)

Sell (12)

Indicators:

Buy (0)

Sell (9)

Bayer AG NA

44.41

+0.53 (+1.21%)

Summary

Neutral

Moving Avg:

Buy (7)

Sell (5)

Indicators:

Buy (1)

Sell (3)

Allianz SE VNA O.N.

220.45

-0.50 (-0.23%)

Summary

↑ Sell

Moving Avg:

Buy (3)

Sell (9)

Indicators:

Buy (3)

Sell (6)

Adidas AG

162.36

+1.64 (+1.02%)

Summary

↑ Buy

Moving Avg:

Buy (12)

Sell (0)

Indicators:

Buy (10)

Sell (0)

Deutsche Lufthansa AG

7.153

-0.095 (-1.31%)

Summary

↑ Sell

Moving Avg:

Buy (2)

Sell (10)

Indicators:

Buy (0)

Sell (5)

Siemens AG Class N

134.30

+1.20 (+0.90%)

Summary

↑ Sell

Moving Avg:

Buy (2)

Sell (10)

Indicators:

Buy (1)

Sell (8)

Deutsche Bank AG

9.935

+0.004 (+0.04%)

Summary

↑ Buy

Moving Avg:

Buy (12)

Sell (0)

Indicators:

Buy (7)

Sell (0)

    EUR/USD 1.0514 ↑ Sell  
    GBP/USD 1.2158 ↑ Sell  
    USD/JPY 148.99 ↑ Buy  
    AUD/USD 0.6332 ↑ Sell  
    USD/CAD 1.3733 ↑ Buy  
    EUR/JPY 156.63 Sell  
    EUR/CHF 0.9626 ↑ Sell  
    Gold 1,839.55 ↑ Sell  
    Silver 21.365 ↑ Sell  
    Copper 3.5980 ↑ Sell  
    Crude Oil WTI 87.52 Neutral  
    Brent Oil 89.25 ↑ Sell  
    Natural Gas 3.046 Buy  
    US Coffee C 148.35 ↑ Buy  
    Euro Stoxx 50 4,113.35 ↑ Sell  
    S&P 500 4,229.45 ↑ Buy  
    DAX 15,124.85 ↑ Sell  
    FTSE 100 7,450.67 ↑ Sell  
    Hang Seng 17,186.00 ↑ Buy  
    Small Cap 2000 1,724.80 Neutral  
    IBEX 35 9,151.75 ↑ Sell  
    BASF 41.945 ↑ Sell  
    Bayer 44.41 Neutral  
    Allianz 220.45 ↑ Sell  
    Adidas 162.36 ↑ Buy  
    Lufthansa 7.153 ↑ Sell  
    Siemens AG 134.30 ↑ Sell  
    Deutsche Bank AG 9.935 ↑ Buy  
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# So hôm qua # Chênh TG
SJC Eximbank6,820/ 6,870
(-20/ -20) # 1,473
SJC HCM6,815/ 6,885
(-5/ -5) # 1,487
SJC Hanoi6,815/ 6,887
(-5/ -5) # 1,489
SJC Danang6,815/ 6,887
(-5/ -5) # 1,489
SJC Nhatrang6,815/ 6,887
(-5/ -5) # 1,489
SJC Cantho6,815/ 6,887
(-5/ -5) # 1,489
Cập nhật 04-10-2023 20:24:11
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ↀ Giá vàng thế giới
$1,826.84 +3.16 0.17%
Live 24 hour Gold Chart
ʘ Giá bán lẻ xăng dầu
Sản phẩm Vùng 1 Vùng 2
RON 95-V25.37025.870
RON 95-III24.84025.330
E5 RON 92-II23.50023.970
DO 0.05S23.59024.060
DO 0,001S-V24.45024.930
Dầu hỏa 2-K23.81024.280
ↂ Giá dầu thô thế giới
WTI $86.53 +4.52 0.06%
Brent $88.83 +3.17 0.04%
$ Tỷ giá Vietcombank
Ngoại tệMua vàoBán ra
USD24.210,0024.580,00
EUR24.873,2126.238,71
GBP28.676,2629.897,08
JPY158,99168,29
KRW15,4918,87
Cập nhật lúc 18:51:01 04/10/2023
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