Valuations give investors pause in buying beaten-up U.S. stock

Without a doubt, stocks are far cheaper than at the start of the year, following a 23% year-to-date decline in the S&P 500 (.SPX) that confirmed a bear market 

Whether they are cheap enough, however, is less certain. Market volatility and a rapidly changing macroeconomic landscape have clouded metrics that investors typically use to value stocks 

such as corporate earnings and Treasury yields, keeping some potential buyers on the sideline. 

"Until we see some better visibility on the rates outlook and some better visibility on the earnings outlook, the fair value for equities is a little bit elusive," said Sameer Samana 

Stocks came under more pressure this week, with the S&P 500 falling to its lowest since late 2020, in the wake of the Fed enacting its largest rate-hike in nearly three decades. 

This year's decline lowered the index's forward price-to-earnings ratio, which compares its price with its expected profits, to 17.3, from 21.7 at the start of 2022 – closer to the market's historic average of 15.5, according to Refinitiv Datastream. 

But while S&P 500 earnings are expected to rise nearly 10% in 2022, according to Refinitiv IBES, some market participants doubt those estimates will hold up in the face of surging inflation and tightening financial conditions. 

Wells Fargo institute strategists forecast positive but slowing earnings growth this year and a contraction in 2023, as they expect a recession in late 2022 and early 2023. 

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