Economics
Whatever the Future Holds, Stocks Are Not Priced for a Recession
- S&P 500 fall at least 30% if downturn occurs: Leuthold
- Still, lower interest rates muddy the valuation picture
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Nobody has a good record predicting the U.S. economy, not pundits and certainly not stock investors. And while a recession has been incorrectly forecast practically every day of the current bull market, when one finally comes it’s going to hurt.
Ten years of gains have fattened price-earnings ratios in U.S. stock benchmarks. Based on profits already booked, the S&P 500 currently trades at about 19.4 times income, while the Nasdaq 100 fetches 24.4 times. Those ratios arguably make sense during an expansion, especially when interest rates are so low. Should growth seize up, as it has shown signs of doing lately, look out.