S&P 500's valuation has fallen to levels that have preceded past comebacks

Stocks may now be cheap enough for investors to buy, despite persistent geopolitical headwinds. Scott Rubner of Citadel Securities pointed out that the S & P 500’s forward price-to-earnings ratio recently fell to 19.7 — just below a five-year average of around 20.1. It’s also in the 6th percentile of its one-year range and the cheapest the index has traded since “Liberation Day” in April 2025. The valuation decline comes as the U.S.-Iran war clouds the outlook for the stock market and the economy. Crude oil prices have soared since the conflict began, stoking fears that inflation will push higher. Recession odds have risen , and the S & P 500 is down 4.7% this month. But, more optimistically, “when SPX forward P/E falls below 20x, forward returns have been favorable,” wrote Rubner. He noted there have been 13 times when the S & P 500 has traded at a forward multiple below 20 going back to 2020. The average return over the following 30 days has been 3.5%, with a median return of 6.4%. This scenario may be playing out this week. Stocks ripped higher on Monday after President Trump signaled progress toward ending the war. And while the major averages fell on Tuesday, stock futures pointed to sharp gains at the open Wednesday. While Citadel Securities’ data set encompasses only a brief period, it could signal the start of a broad market turnaround. What to buy Rubner highlighted several trades he likes going forward, particularly around technology. Some of his favorite trade ideas include call option spreads expiring in April on the following names: Nvidia Amazon Alphabet Apple Call options give traders the right, but not the obligation, to buy a stock at a certain price within a specific timeframe. Investors buy calls when they think a stock is going higher. A call spread involves buying a call option while selling another call at a higher price at the same expiration. These can be used to mitigate risk by limiting potential losses.