Sponsored by

When ETFs Throw Curveballs By Spencer Jakab

It looks like three straight days in the green was too much to ask for. The tariff-relief rally is sputtering in the stock and currency markets as China says it currently isn't in talks with the U.S. about reducing levies. In non-tariff news, investors will be watching data on durable goods, existing home sales and jobless claims later this morning.

***

Tempted by the recent market rout ?

Most investors these days turn to exchange-traded funds rather than individual stocks when putting money to work, and there are a few apparent bargains. Or do they just look that way?

In the case of individual stocks, even casual investors can glance at a price-to-earnings ratio to get a sense of its cheapness. That measure is far from perfect-sort of like casual baseball fans thinking a baseball player must be pretty good just on the basis of his batting average. Real statheads prefer all sorts of more obscure measures.

The problem gets thornier when individual investors eye an ETF's P/E ratio: You might buy what looks like Aaron Judge and wind up with Mario Mendoza .

Take one of the most popular U.S. funds, the iShares Russell 2000 ETF with $64 billion in assets. On Friday the small capitalization fund's operator said it had a trailing P/E ratio of 15, nearly a third less than the large company S&P 500 . That's plausible-small stocks have been hit harder.

S&P Capital IQ said the ratio was 15.4, though, and the Wall Street Journal's data provider put the P/E ratio at a much higher 25.8. Yet another site, VettaFi, made it look cheaper at 11 times. And a fund from Vanguard holding the exact same stocks advertised a 16.4 multiple on its website.

None of this is meant to deceive or defraud-every buyer gets the same returns, whatever they turn out to be. The funkier the stocks, though, the larger the distortions.

For example, the Global X Cybersecurity ETF trades at a reasonable 32 times according to its sponsor, but VettaFi pegged it as more expensive at 41.3 times. Adding up and weighting its constituents manually gets you a P/E of 55-but only if you ignore the ones that don't earn anything.

The solution varies between data providers and can matter a lot with an index like the Russell 2000, which has many loss-making companies. Even more vexing is one with a tiny profit. Say you own a $50 stock that earns $5 a share for a P/E of 10. If it barely breaks even the next year and earns 5 cents, do you use a 1,000 P/E ratio? If it loses 5 cents, do you skip it?

Just ignoring that is "doable by a 4th grader and lazy" says ETF veteran Dave Nadig . There are harder, potentially more informative calculations, but then some firms also don't update the figures promptly. The Russell 2000 is in a bear market and could well be a bargain. Whether you think so might depend on where you look up the ETF's P/E and when it was refreshed.

It's so easy to whiff.

Stocks I'm Watching

IBM : The tech company warned that macroeconomic uncertainty was prompting businesses to rethink spending. Shares slid 8% in premarket trading, despite IBM posting better-than-expected quarterly results.

Tesla : The EV maker's European Union sales plunged for a third month , the latest sign that concerns around tariffs and Elon Musk's relationship with the Trump administration are weighing on demand. Shares fell nearly 2% premarket.

STMicroelectronics : The Tesla chip supplier projected lower sales this quarter , but said it expects demand to recover in coming months. U.S.-listed shares rose almost 3% before the bell.

ServiceNow : The software company reported higher-than-expected revenue growth and said the government's efficiency drive has increased demand. Shares rallied 9% premarket.

Texas Instruments : The chip maker reported double-digit quarterly sales growth, sending shares higher premarket.

Chipotle : The burrito chain said consumers are pulling back on spending, and tariffs will likely drive up its costs this year. Shares fell before the bell.

Whirlpool : Quarterly sales dropped as tariffs prompted Asian appliance manufacturers to ramp up shipments into the U.S., putting a chill on in Whirlpool's business in Canada and Europe. The company voiced support for the U.S.'s tariffs, saying t hey would aid American manufacturing .

Kering : The Gucci parent's quarterly sales missed expectations , as the company navigates a slowdown in luxury-goods spending. Shares dropped 5% in France.

Southwest Airlines ; American Airlines : Both carriers are due to post earnings ahead of the open. Late Wednesday, Alaska Air withdrew its annual outlook, c iting market uncertainty and volatility .

Merck and Procter & Gamble are also due to report earnings before the opening bell. Google parent Alphabet and Intel are scheduled to report results after the closing bell.

CONTENT FROM: Guidehouse What's reshaping financial services?

"This is a critical time for financial services transformation. Balancing strategic priorities, investment allocations, technological innovation, and regulatory flux is essential to navigating the evolving landscape." -SHY Jessica Stallmeyer, Partner and Financial Services Leader

Read More

Markets at a Glance

Data refreshes every time you open this email.

Follow our live markets coverage , updated throughout the day.

One Big Chart

Huge Stock Swings Are the New Normal for Frazzled Investors

April is poised to be the most-volatile calendar month since the Covid crash in 2020. Many are betting that the mammoth moves for stocks will continue given how sensitive investors are right now to morsels of news tied to tariff-related news.

What I'm Reading President Trump has finally met his match: the markets. ( WSJ ) Gold has once again proven its worth as a hedge against financial chaos. If history is any guide, the gains may have room to run, but silver could be an even better bet argues Heard on the Street. ( WSJ ) "We are not going to continue to build airplanes for customers who will not take them." Boeing says it has other customers for planes China won't accept. ( WSJ ) "Hey, man, how've you been?" The company that laid you off wants you back. What should you do? ( WSJ ) Avoiding dumb mistakes is the easiest way to become a better investor. ( The Better Letter ) Beyond the Newsroom

Buy Side from WSJ: Consolidate credit card and other high-interest debt with these debt consolidation loans .

About Me

My name is Spencer Jakab and I've been musing about money and markets for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

The Markets A.M. newsletter prepares you for the trading day ahead, with expert insight into the companies and industries set to move markets. Send your feedback to [markets.am@wsj.com], or reply to this email.

Enjoying this newsletter? Get more from WSJ and support our journalism by subscribing today with this special offer .

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

April 24, 2025 06:49 ET (10:49 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.