Barclays: Thought-provoking! The roller coaster of valuation downgrades and re-evaluations in the US stock market
Barclays pointed out that large U.S. technology stocks have experienced valuation downgrades and re-evaluations, with current trading prices still 4 times lower than the end of 2024. Despite strong earnings in the first quarter of 2025, indicating solid growth drivers, the forward price-to-earnings ratio of the S&P 500 index is 22 times, while non-tech stock valuations remain robust. The easing of trade tensions and the advance purchasing behavior of consumers and businesses have masked some economic damage. The rise in the yield of 10-year U.S. Treasury bonds poses challenges to stock valuations
According to Zhitong Finance APP, the internationally renowned investment bank Barclays recently stated that after experiencing record valuation downgrades and rapid re-evaluations, the trading prices of large U.S. tech stocks are still about four times lower than at the end of 2024; their impressive earnings in the first quarter of 2025 confirm that key growth drivers remain solid. The valuations of components in the S&P 500 index, excluding tech stocks, performed more robustly during the sell-off, and despite weak earnings in the consumer sector, their valuations have rebounded from oversold levels.
The U.S. stock market (S&P 500 index) has nearly erased all losses year-to-date due to recent signs of easing trade tensions. The forward price-to-earnings ratio of the S&P 500 index is currently 22 times, thanks to the valuations of components in the S&P 500 index, excluding tech stocks, which are up 0.5 percentage points from the beginning of the year.
Figure 1. The valuation of non-tech stocks in the S&P 500 index has fully recovered; despite the re-evaluation of large tech stocks after outstanding performance in the first quarter of 2025, their valuations are still four times lower than the beginning of the year forward price-to-earnings ratio (Fwd PE).
Although the uncertainty brought by tariffs may have peaked, the advance purchasing behavior of consumers and businesses before the implementation of tariffs has masked some economic damage that has yet to be reflected in macroeconomic hard data. Earnings in the first quarter of 2025 were better than expected, but signs of consumer weakness were evident in the discretionary (excluding Amazon) and staples sectors, which are among the few sectors experiencing year-on-year earnings per share contraction and negative operating leverage.
Given that macroeconomic hard data remains robust, concerns over fiscal deficits are increasing, and the Federal Reserve is not in a hurry to cut interest rates, the rise in the yield of 10-year U.S. Treasury bonds poses challenges to stock valuations.
The valuation of large tech stocks has recovered from significant downgrades (from 31 times to 21.5 times) to about 27 times, following better-than-expected earnings in the first quarter of 2025 and positive news in cloud services, data centers, and artificial intelligence. The valuations of non-tech stocks are worth noting
