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U.S. Stocks Face Valuation Test Being at Their Cheapest in Nearly 18 Months!

April 11, 2025 | Kuala Lumpur, Malaysia – U.S. stock markets are grappling with unprecedented volatility as President Donald Trump’s aggressive tariff policies ignite a global trade war, leaving investors questioning whether current valuations justify diving back in. The S&P 500’s forward price-to-earnings (P/E) ratio, a key metric for assessing stock value, dropped to 18.01 on Tuesday—the lowest since November 2023 and below its 10-year average of 18.63, according to Dow Jones Market Data. Yet, after a dizzying 12% plunge in just four days, experts say stocks still don’t look cheap enough to lure buyers amid the uncertainty.

“After such a sharp pullback, valuations are just ‘normal’ now,” said Paul Stanley, Chief Investment Officer at Granite Bay Wealth Management, in an interview with MarketWatch. “The problem is, with tariffs swinging between 10% and 100% daily, no one can reliably forecast earnings.” The S&P 500’s consensus earnings per share (EPS) estimate for 2025 has slipped to $267.60 from $271.05 a month ago, per FactSet, but Stanley warns analysts lack the data to fully adjust projections yet.

U.S. Stocks

Trump’s tariff rollercoaster began on April 2 with a 10% universal levy on imports, coupled with steeper “reciprocal” tariffs on major trading partners like the EU, China, and Japan. A week later, he paused most reciprocal tariffs for 90 days, keeping the base rate at 10%—except for China, where levies soared to 145%. China retaliated with 84% tariffs on U.S. goods, deepening the standoff. BofA Securities predicts a potential 15% hit to S&P 500 operating income from the U.S.-China clash alone, though pricing power might soften the blow—or escalation could worsen it.

With first-quarter earnings season kicking off today, led by giants like JPMorgan Chase, investors are bracing for clarity. “This earnings season is critical,” said Chris Fasciano, Chief Market Strategist at Commonwealth Financial Network. “Companies’ guidance will show how tariffs are reshaping their outlook. If earnings forecasts drop, P/E ratios might finally reflect reality.” However, BofA strategists caution that some firms might suspend guidance entirely—mirroring the COVID-era drop to 10% of companies offering annual forecasts—potentially tanking their stock prices.

U.S. Stocks and Malaysian Investors

For Malaysian investors watching from afar, the stakes are high. A U.S. recession triggered by this trade war could ripple through Asia, impacting export-driven economies. As Wall Street navigates this storm, the question remains: will earnings season bring the certainty needed to reset valuations, or deepen the market’s tailspin?

Reported by BusinessNews.com.my