Lori Calvasina, Head of U.S. Equity Strategy at RBC Capital Markets, identifies a developing "valuation opportunity" in the U.S. equity market amidst recent volatility. Her analysis indicates that the forward price-to-earnings multiple of the U.S. stock market relative to non-U.S. developed markets has dropped to levels last observed in late February, just prior to the onset of the U.S.-Iran war. Calvasina's midweek model examination underscores this emerging opportunity.
RBC's research points to several positive factors, including the technology sector's next 12-month price-to-earnings ratios (NTM P/Es) now looking "slightly attractive" and being well below their long-term average on an absolute median P/E measure. Additionally, the broader market's two-month price-to-earnings ratios have finally broken slightly below and are now back below their long-term average, which Calvasina describes as "starting to look reasonable again." These trends suggest that previous concerns, such as "AI fears" that led to P/E compression last year, are now less impactful.
Calvasina further notes that the current market environment is characterized by a solid GDP backdrop and subdued sentiment. She attributes some of the recent volatility to market uncertainty and suggests that, despite the choppy week, her modeling indicates a positive outlook. The S&P 500, for instance, saw some significant daily swings but still gained for the week, ending roughly 1.6% below its previous level. This indicates a potential for a defensive shift back into U.S. stocks, with semiconductors also being a focus of interest.
