To look at stock valuations, the pandemic might never have happened.
On Monday, the U.S. market closed its worst month since March 2020, with the S&P 500 falling 5.3%. The index has now lost all of its price gains since mid-October. The technology-heavy Nasdaq has retreated further, because the sectors that have performed worse are those more affected by higher interest rates, which the Federal Reserve has said will be a reality this year.
Here is the good news: Relative to the earnings that listed companies are expected to make over the next 12 months, equities have cheapened to roughly where they were in February 2020.
Even before the January selloff, valuations had been falling since May. The S&P 500, the Euro Stoxx 50 and the FTSE 100 are trading at price-to-earnings ratios of 20, 14 and 12, respectively. And such…
