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U.S. stocks took as big a beating
« on: December 09, 2017, 06:19:43 PM »
NEW YORK (Reuters 2007 Archive) - It’s been five years since U.S. stocks took as big a beating as they did this month, but their climb out of the cellar this week has fed optimism that November may not be the dawn of a bear market after all.

Just four days ago U.S. equity index benchmarks were all 10 percent or more below their 52-week highs, marking the first formal market correction in more than four years.

At the time, rattled investors appeared convinced that the unraveling of the housing and credit markets had much further to go, and stocks were not the place to be.

But in a wink, the mood changed. In a deal announced between Monday’s market close and Tuesday’s open, an Abu Dhabi government fund forked over $7.5 billion for a stake in Citigroup (C.N), triggering four days of gains for the Dow and S&P 500 to close out the month.

“I have a feeling the worst of the correction is behind us,” said Edgar Peters, chief investment officer at Panagora Asset Management Inc. in Boston. “The chances of this becoming a full-blown bear market are pretty small.”

The Abu Dhabi deal appeared to advertise what some investors had been arguing for weeks: stocks were bargains, and financial sector stocks were doubly so.

Indeed, standard valuation methods suggested stocks were their cheapest in more than a decade. The S&P 500’s forward price-to-earnings ratio, based on projected earnings for the coming 12 months, troughed below 13.7 on Monday, their least expensive since 1996, according to Reuters Estimates.

Financial sector valuations had suffered more than others, dropping about 15 percent since mid-October to as low as 9.4 times estimated earnings as the outlook for bank profits eroded thanks to the credit crisis. At Monday’s low, the S&P financial index .GSPF was more than 25 percent below its record high in late May.

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