Battered U.S. stocks may not be bargains as investors brace for inflation data

U.S. stocks’ tumble this year is putting an increased focus on equity valuations, as investors assess whether recently discounted shares are worth buying in the face of a hawkish Federal Reserve and widespread geopolitical uncertainty.

While recently discounted valuations may boost stocks’ appeal to some bargain hunters, other investors believe equities may not be cheap enough, as the Fed signals it is ready to aggressively tighten monetary policy to fight inflation, bond yields surge, and geopolitical risks such as the war in Ukraine continue roiling markets.

More volatility could be in store if the coming week’s monthly consumer price index reading exceeds expectations, potentially bolstering the case for even more aggressive monetary policy tightening from the Fed. Though valuations have come down, S&P 500′s forward P/E stands above its long-term average of 15.5 times earnings estimates.

Higher yields in particular dull the allure of technology and other high-growth sectors, as their cash flows are often more weighted in the future and diminished when discounted at higher rates.

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