Stocks are just as expensive now as they were before the crash: Morning Brief

Sam Ro
Managing Editor

Thursday, April 9, 2020

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Earnings estimates are finally catching up to stock prices

Early on in the market selloff, some market pundits were quick to say stocks were getting cheap as reflected by a forward P/E multiple that plunged from a high of 19x to 13x, which is considerably lower than the 10-year average of 15x.

At the time, Yahoo Finance Morning Brief readers were warned that this was largely due to the lag in analysts revising their earnings expectations lower to reflect the new reality of the economic lockdowns triggered by the coronavirus pandemic.

A month later, analysts are still slow to revise their earnings lower (some have even suspended their forecasts). But they’re coming down, and they’re coming down sharply.

In fact, if you only consider the estimates offered by analysts who’ve made revisions in the past week, you’ll find that earnings estimates are now so low that they’ve paced with the decline in stock prices. And if you know how arithmetic works, you know that means the forward P/E is now up.

Credit Suisse’s Jonathan Golub observed that with the recent modest rebound in stock prices, that forward P/E is now back at around 19x.

“This is the same level it held on Feb 19, the all-time high for stock prices,” Golub wrote on Tuesday.

Stocks aren't as cheap as you think. (Credit Suisse)

Though, you could also say that we will have a V-shaped recovery in earnings whenever the economy comes back online, in which case you could once again argue prices are indeed cheap.

But then again, perhaps the market is also telling us that it doesn’t buy the idea that things will come back online that soon.

In some ways, this whole conversation was futile from the start as Morning Brief readers know that forward P/Es, whether high or low, aren’t very reliable predictors of the stock market anyway.

Investing’s tough. Especially when you consider that the experts who get paid more than most of us to provide a better answer have almost never been more far apart in what they expect.

By Sam Ro, managing editor. Follow him at @SamRo

What to watch today


  • 8:30 a.m. ET: PPI Final Demand month-on-month, March (-0.4% expected, -0.6% in February); PPI excluding food & energy month-on-month, March (0.0% expected, -0.3% in February); PPI Final Demand year-on-year, March (0.5% expected, 1.3% in February); PPI excluding food & energy year-on-year, March (1.2% expected, 1.4% in February)

  • 8:30 a.m. ET: Initial Jobless Claims, week ended April 4 (5 million expected, 6.648 million prior); Continuing Claims, week ended March 28 (3.029 million prior)

  • 9:45 a.m. ET: Bloomberg Consumer Comfort, week ended April 5 (56.3 prior)

  • 10 a.m. ET: Wholesale Inventories month-on-month, February final (-0.5% expected, -0.5% prior)

  • 10 a.m. ET: University of Michigan Sentiment, April preliminary (75.0 expected, 89.1 prior)


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An almost empty pavement is pictured on the South Bank, by the River Thames, with the landmark the London Eye beyond, in central London on April 7, 2020, as life in Britain continues during the nationwide lockdown to combat the novel coronavirus pandemic. - British Prime Minister Boris Johnson spent the night in intensive care after being admitted with a deteriorating case of coronavirus, prompting serious concerns on Tuesday about his health and the government's response to a still-escalating outbreak. (Photo by ISABEL INFANTES / AFP) (Photo by ISABEL INFANTES/AFP via Getty Images)

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Editor’s note: Morning Brief will be observing Good Friday on April 10. It will return on Monday, April 13.

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