Investors worried about the next pullback for stocks might want to pause and consider this: the decline in equity valuations since the start of the year already has exceeded the average pullback of other recessionary periods since the early 1990s, according to JPMorgan Chase & Co.’s equity quant Marko Kolanovic. While more Wall Street analysts have been painting a grim picture of the trajectory of corporate profits this year, Kolanovic, who successfully called the summer stock-market rebound, said investors might be pricing in too dire of an outcome for stocks, even if the American economy falters.
Instead, U.S. equity valuations already were seeing a dramatic re-rating lower, even by the standard of a typical recession, he argued, in a Monday research note. As part of his bullish argument, Kolanovic looked at the next-twelve months (NTM) price-to-earnings ratio — perhaps the most popular ratio used to express equity valuations — and found that it exceeded the average pullback in recessionary periods over the past 30 years. Kolanovic also found that this year’s pullback would be the second-biggest to follow a recession, should one be declared. To be sure, valuations (using NTM earnings expectations as the denominator) occasionally have been lower, like when …