Investors are paying less for stocks than they have during every recession since Ronald Reagan was president, Bloomberg reported Monday. “There are truly some terrific values out there in companies, but it’s a question of timing,” said John Massey at SunAmerica Asset Management, in the report.
However, some market watchers point out that analysts’ profit forecasts may be too high. “Also unsaid was the impact of recession on earnings,” Barry Ritholtz, chief executive at quantitative research firm Fusion IQ, commented on the Bloomberg report.
“The Reagan Recession came at the end of a 16-year bear market, plus benefited from [Federal Reserve Chairman Paul Volcker] breaking the back of inflation. The threat today is a Japan-like deflationary spiral, including falling asset prices and an unwillingness for investors to buy up for a dollar of earnings,” Ritholtz wrote. “In other words, a falling [price-to-earnings ratio] could be evidence of an ongoing deflationary phase, and not proof that markets are cheap.”
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Max Chen contributed to this article.