S&P 500: Sad but true – Nordea

There were many factors that coincided to create a bear market relief rally for risky assets this week such as massively oversold conditions, equity sentiment indicators in bearish territory and unprecedented policy measures, according to analysts at Nordea.

Key quotes

“Our volatility-adjusted price-to-book indicator of the S&P 500 is below or at levels that turned out to be good entry points to go long equities in 2008, 2011, 2015, 2016 and 2018 if you had a 1-year investment horizon.”

“We would claim that it’s hard to argue that equities are cheap given the recession the world has entered and the uncertainty surrounding it.”

“During periods with growth and inflation momentum both negative, which we expect will prevail for a while, equities and corporate bonds tend to continue to underperform.”

“At a forward P/E of above 15, the S&P 500 is far from ‘recession cheap’ especially since forward earnings have hardly been adjusted at all. In both 2008 and 2011, the forward P/E bottomed close to 10.”