Lower Valuations Add Long-Term Opportunity

This week, LPL Research lokos “at stock valuations to try to gauge the potential opportunity for stocks. Amid the dizzying volatility and news cycle that investors have had to deal with lately, it can be difficult for many investors to take a step back and see beyond the daily headlines. We try to do that this week by focusing on what lower stock market valuations relative to corporate profits may signal for stock market performance over the next year and beyond.”

Key takeaways include:

  • A significant drop in stock market valuations may portend above-average stock market performance, based on history.
  • Stocks also look attractively valued relative to bonds based on a comparison of earnings yields.
  • Though it is difficult to think long-term during volatile market environments, low valuations have been closely tied to future positive long-term stock performance.

To read more from John Lynch, Chief Investment Strategist, and Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial, click here.