Amid a turbulent market environment characterized by surging inflation and geopolitical risks, the broader pullback in markets has left investors with plenty of uncertainty, with the Federal Reserve expected to announce rate hikes this week. According to John Hancock Investment Management Co-Chief Investment Strategist Emily Roland, U.S. stocks may currently be cheaper than they appear.
“Higher gas prices are certainly going to take a bite out of the consumer. But the consumer is coming into this in pretty good shape,” Roland told Yahoo Finance Live. “So the consumer’s in decent shape, but it’s definitely going to take a bite out for sure and risk slowing the economic backdrop even more. But from a valuation standpoint, we actually see U.S. assets on sale right now.”
She pointed to price-to-forward-earnings ratios for the S&P 500 (^GSPC) lowering since the start of the year as an indication of relative undervaluation in the market. Roland also noted that earnings estimates for the S&P are concurrently on the rise, with analysts expecting earnings growth of 5.5% for Q1 2022 and 4.8% for Q2 2022 according to FactSet (FDS).
“So again, you see that negative price action playing out. Meanwhile, earnings estimates are moving higher. That’s a nice resetting in P/E ratios that we haven’t seen in quite some time,” she added.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 11, 2022. REUTERS/Brendan McDermid
Roland joined Yahoo Finance Live to discuss the outlook for the stock market, investing strategies for the current business cycle, and the impacts the U.S. economy will face if inflation continues to outpace wage growth.
A company of Manulife Investment Management — the asset management division of Manulife Financial Corporation (MFC) — John Hancock Investment Management is a Boston-based hedge fund manager. The firm manages open-end funds, closed-end funds, college savings assets, retirement plans, and related party assets for individual and institutional investors.
Roland’s thesis of strong consumer positioning in light of the inflationary environment echoes that of other strategists who cite the spending of savings accumulated throughout the pandemic, elevated wage growth levels, and other healthy consumer metrics such as the current unemployment rate at 3.8% for February. But while wages technically rose last year, inflation actually resulted in a 2.4% pay cut for workers.
Roland acknowledged, however, that the “biggest challenge” facing the American consumer right now is the alarming pace at which wage growth is being eaten away by inflation.
“This is going to increasingly become a challenge,” she said. “If wage growth cannot keep up with inflation, certainly it’s going to start to create this tax on the consumer, which again, contributes to this stagflationary dynamic, and by the way, makes the Fed’s job even more challenging.”
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV