The US stocks turn attractive on lower PE ratios

By MoneyTimes

Sep 01, 2015 08:49 PM EDT

The US stocks turn attractive on lower PE ratios.

The latest market crash might have eroded $2.1 trillion value in the market capitalization in the US stock markets, but equities are no more overpriced as price-to-earnings (PE) ratios turn attractive. According to ConvergEx, after the recent 10 percent drop in the US markets, no one can say that American stocks are expensive.

Considering PE ratios, Dow stocks now trade at 15.5 times the earnings forecast for this year and 14 times next year's projections. Though, the US stocks are not very cheap, but attractive as it's away from 18 times of earnings few months ago. Investors are also need not be panic as this is only a very needed correction after continuous upward movement of over 200 percent in the last few years.

However, the positive side of the coin is thatAmerican economy is doing well. This can be further vindicated by Barclays' forecast. Barclays projected domestic growth of 2.8 percent for the third quarter. This gives boost to the business confidence as this growth level leaves no one to think of a recession. 

However, the downfall seems to continue for some more time as most of the US stocks breached their key support levels, as Merrill Lynch cautions. Every further fall will give investors more buying opportunities.
The US bourses recorded a hefty loss of market capitalization worth $2.1 trillion in just six sessions of trading. The heavy downfall, the very much needed correction as analysts say, has pulled down the Dow Jones, S&P 500 and Nasdaq indices by over 10 percent since 2011 crash. 

According to S&P Dow Jones indices, the barometer for the major US corporate companies-- the S&P 500-- shed trillions of dollars in market value as equities continued to tumble during the six sessions including Tuesday. 

It's estimated that $2.1-tr loss in market capitalization is almost equal to the combined value of Apple, Google, 21st Century Fox, Walmart, ExxonMobil, Berkshire Hathaway and Facebook. This is also equal to the British version of S&P 500, The S&P BMI UK Index, which is worth $2.8 trillion in value.  

The latest bout of market crash not only eroded gains of 2015, but those in 2014 as well. The Dow Jones is hovering at its lowest since February 2014. The main culprit that triggered the market fall was Chinese factor. The slowdown in the world's second largest economy has started creating tremors across the world. This was further fuelled with devaluation of China's currency Yuan. Subsequently it's aggravated with discouraging numbers from Chinese manufacturing industry. 

China markets reacted negatively in early summer, but nobody was clear about its implications. Actually, it was an indication about the bursting of Chinese stock markets. If analysts could read it very well, it would have been much clear that it was nothing but a red flag about the erupting deeper loop holes in the world's second largest economy.

Subsequently, on 11 August, China government devalued its currency Yuan with an objective of giving a push to exports. But, this had further dampened global market sentiment as devaluation of Chinese currency put more pressure on emerging economies currencies.

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