Even after a giant fall, stocks are still expensive by historical standards


For instance, January and February. Though it seems distant now, the S&P 500 hit its all-time high of 3394 on Feb. 19. “The stock markets previously had priced in a Goldilocks scenario and entered the year with an elevated price-to-earnings multiple, providing little cushion,” says Jared Franz, an economist at investment giant Capital Group. Then came the coronavirus.

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As the effects of the coronavirus continued to spread throughout late February and March, the stock market sustained a series of blows. Investors were not only plagued by uncertainty, they also began to reassess the rich premiums they had been paying for all sorts of assets. And once they started asking “How much is this market really worth?” the answer was bleak indeed. “In the past cycle, the elixir was that when the Fed eases, the price of risk assets goes up,” says Liz Ann Sonders, chief investment strategist at Charles Schwab. “That narrative is now undergoing an epic shift. Credit is tightening even though rates are falling, and that’s hitting valuations.”

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