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Michael Kantro: Fed policy expectations and Mag 7 P/Es explain lower market valuation

Michael Kantro: Fed policy expectations and Mag 7 P/Es explain lower market valuation
Fed policy and Mag 7 debt drive P/E drop

Michael Kantro explains that two main factors are behind the roughly 10% lower price-to-earnings (P/E) ratio in the market this year.

According to Kantro, the first factor is the pricing in of U.S. Federal Reserve policy expectations, and the second is a notable double-digit drop in the P/E ratios of the so-called Mag 7 stocks, which he links to rising debt costs. He disagrees with the view that high P/E levels themselves are the reason for the decline.

Kantro previously highlighted that the reopening of the Strait of Hormuz was expected to lower the likelihood of a U.S. Federal Reserve rate increase this year, according to a recent note. In a separate discussion, he explained money flows in stock transactions, detailing what happens to funds when $100 is withdrawn from a money market account to buy a stock, as described here. These points offer context for his views on market pricing and P/E ratios.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.

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