North American stock markets have likely bottomed after having overshot the average bear market downturn, providing investors with a good bargain hunting opportunity, Tobias Levkovich , the chief U.S. equities strategist at Citigroup says.
“When considering valuation, we would submit that equity markets look very attractive,” Mr. Levkovich said in a note to clients. He said stocks were trading below at below-average earnings per share levels, with price-to-book ratios not seen since the early 1990s. He pointed out that interest rates were now lower than at that time.
Mr. Levkovich said the typical bear market - which is defined by a 20% slide in share prices - had averaged a drop of 36.5% since 1929.
He said:
Accordingly, with the equity market’s current peak to trough loss at 45.8% we believe the S&P 500 already may have hit its bottom.
However, he said it was unclear when investors with the large amounts of cash sitting on the sidelines would be ready to inject it back into the market.
He said:
To be fair, clarity most likely will come later than the fact and thus we look at historical parameters to determine that now is a good time to be in equities, especially as the non-financial constituents of the S&P 500’s cash position as a percentage of equity market cap is at levels seen after the crash of 1987 and the 49% decline in the 2000-02 bear market.
