MW U.S. stocks are looking cheap for the first time in a year

By Joseph Adinolfi and Isabel Wang

The S&P 500's forward price-to-earnings ratio is back below its 5-year average

The S&P 500's forward P/E ratio is back below its five-year average.

For the first time in a year, shares of the biggest companies in the U.S. are starting to look like a good deal.

When trying to determine how cheap or expensive a stock is, Wall Street analysts typically first look to a company's forward price-to-earnings ratio. It compares the price of a company's stock with analysts' expectations for how much profit the firm will earn over the next 12 months.

Earlier this week, the forward P/E ratio for the S&P 500 SPX sank as low as 19.95, putting it below its five-year average for the first time since last May, according to Dow Jones Market Data.

The information-technology sector is looking even more attractive relative to recent history: Its forward P/E ratio stood at 21.48 this week, well below the five-year average of nearly 26.

"Valuations are coming in, and they look really good, we're getting much closer to historical averages, and that has all happened in the past three to six months for the most part," said Mark Gibbens, chief investment officer at Gibbens Capital Management, during an interview with MarketWatch.

Major U.S. equity indexes have struggled since the start of 2026. Initially, investors shifting money away from Big Tech stocks and software names in favor of small caps and so-called "HALO" names - an acronym that stands for "heavy assets, low obsolescence" risk - appeared to put a lid on the S&P 500 and the tech-heavy Nasdaq composite.

Meanwhile, stocks trading outside of the U.S. had raced ahead. But this trend has reversed somewhat since the U.S. and Israel first attacked Iran in late February. The small-cap Russell 2000 RUT entered correction territory last week, becoming the first major U.S. index to do so since the start of the conflict.

The S&P 500 hasn't registered a record high since January, and the Nasdaq hasn't seen one since October. Both indexes are currently in the red since the beginning of the year.

The shift toward more attractive valuations isn't only being driven by declining prices; corporate earnings are also expected to pick up in 2026. Analysts have penciled in earnings growth of 17% for the S&P 500, according to the latest data from FactSet. This has caused bold-faced U.S. names like Nvidia (NVDA), Amazon (AMZN) and Microsoft $(MSFT)$ to trade like value stocks, according to some.

See: Have Amazon and Nvidia become value stocks? This metric says yes.

Although they have held up better than the broader U.S. market in March, valuations for tech names are still looking cheap relative to other corners of the market. According to Julian Emanuel, a top strategist at Evercore ISI, the Nasdaq-100 NDX hasn't been this attractively valued compared with the S&P 500 in a decade.

In a recent note to clients, Emanuel highlighted dozens of quality stocks in the S&P 500 that he said were trading at valuations below those seen at the bottom of the COVID-19-inspired selloff in March 2020. Netflix $(NFLX)$ and Salesforce (CRM) were just two examples.

Approach with caution

To be sure, not everybody agrees that U.S. stocks are a good buy here.

"We are still viewing equity risk as not being broadly rewarded at current market levels. While relatively more attractive than what we saw around the end of January, even the current levels appear to be highly optimistic about the future prospects for growth," said Ryan Dykmans, chief investment officer at Dunham & Associates Investment Counsel.

Wall Street analysts generally haven't lowered their earnings estimates for the biggest U.S. companies since the start of the Iran conflict. In fact, consensus estimates for S&P 500 firms' earnings per share recently hit a new high, according to Michael Kantrowitz, chief investment strategist at Piper Sandler. This could be helping to shield U.S. stocks from some of the fallout from the war.

See: Here's why stocks haven't fallen harder due to the Iran war

"Usually, it takes about 2-3 months after the start of a market decline until we see consensus earnings estimates adjust," Kantrowitz said in commentary shared with MarketWatch last week.

Surging oil prices could boost inflation, while weighing on economic growth, making it harder for companies to grow their profits.

"The uncertainty stemming from the energy shock and its inflationary impact on both cost structures and consumer behavior could prove significant on corporate earnings," said Jordan Rizzuto, chief investment officer at GammaRoad Capital Partners.

Major U.S. stock indexes finished mostly lower on Tuesday, with the S&P 500, Nasdaq Composite COMP and Dow Jones Industrial Average DJIA finishing in the red. The Russell 2000 RUT, meanwhile, rose by 0.5%.

-Joseph Adinolfi -Isabel Wang

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 24, 2026 17:18 ET (21:18 GMT)

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