Are Stocks Finally Cheap Again? Here's Why Investors Can't Trust This Popular Valuation Metric Right Now.
Since the sell-off accelerated, stocks look cheap -- but looks may be deceiving.
The stock market experienced an incredible bull run for over two years, starting in October of 2022. Expectations for lower interest rates combined with massive advancements in artificial intelligence created an incredible environment for growth. Stocks continued to soar higher through the start of 2025, reaching valuation levels rarely seen in stock-market history.
But stocks started to tumble in mid-February. And following President Donald Trump's tariff announcement on April 2, they crashed, giving up all the gains of the previous year. The tech-heavy Nasdaq Composite index fell into bear market territory, as did the small-cap Russell 2000 index. The S&P 500 (SNPINDEX: ^GSPC) came close, but narrowly staved off the requisite 20% drop from its all-time high before recovering slightly.
Still, stocks remain significantly below the highs reached in February, so you may be wondering if it's time to start buying at these lower valuations. But it's important to note that the most popular valuation metric for stocks isn't totally reliable right now. Here's what you need to know.
