"Should You Switch from K-Stock to U.S. Stocks?... U.S. Stock Market Valuation Attractiveness [Weekend Money]"

S&P 500 PER Hits Lowest Level Since 2023
Better Seen as Undervaluation Than a Shift Toward Bear Market

There has been an analysis suggesting that the U.S. stock market is undervalued. While the price-to-earnings ratio (PER) has declined, the pace of earnings improvement has accelerated, making valuations more attractive.

According to LSEG, as of September 18, the S&P 500’s 12-month forward PER dropped below 19 times, reaching its lowest level since 2023.

This kind of PER derating can be seen as a signal to increase weightings, since a low PER indicates high price attractiveness. Especially in a range-bound market, a low PER serves as an investment point, as it suggests strong downside support due to the stock's low price.

Conversely, it can also signal a need to reduce weightings. Stock prices tend to move ahead of earnings per share (EPS), and when the PER is derated, a subsequent fall in EPS can often lead to a prolonged bear market. For instance, the S&P 500 broke below its PER support line ahead of the two years before September 2000, January 2008, and January 2022, and entered a bear market thereafter.

Shinhan Securities has judged the current PER drop as a signal to increase weightings, citing that the S&P 500's 12-month forward EPS is growing rapidly. When earnings are strong and stock prices are low, companies may boost share buybacks to defend the lower end of their stock prices.

From this perspective, Shinhan Securities analyzes that the recent PER decline is the result of concerns about a peak in the artificial intelligence (AI) industry and rising geopolitical tensions.

Sung Hwan Kim, a researcher at Shinhan Securities, said, "If EPS does not collapse, the current PER should be seen as already reflecting negative factors," adding, "In this phase, even if the U.S. stock market does not undergo at least a re-rating, the rapid pace of earnings improvement—the fastest in history—offers tactical advantages to investors."

This content was produced with the assistance of AI translation services.