economy
The stock market sell-off was deeper than it looked. And that bodes well for a future comeback
The S&P 500's price-to-earnings ratio shows the drawdown was actually more intense than it seemed. That's good news for investors looking for a recovery rally.
TL;DR
- Morgan Stanley believes the S&P 500's recent rally could signal a larger rebound.
- The market's drawdown was more intense when measured by its price-to-earnings ratio, falling 15% from its October high.
- This valuation drawdown rivals that seen during the 2015 manufacturing decline and the 2023 recession scare.
- Forward earnings growth is accelerating, nearing 20%, suggesting the current business expansion is resilient.
- Historically, stocks have seen above-average returns when earnings accelerate and the breadth of earnings per share revisions is positive.