Capital Markets: Observations and Insights

Fundamentals vs. Valuation ​ Reframing Risk

RISK

• Instead of using statistics, investors should think of risk as the chance of loss or the probability that the bear case comes to fruition

• But what is more important when assessing risk—fundamentals or valuation?

Change During Recessions

EPS

P/E

Historically, recessions hurt EPS more than P/Es

-2%

-24%

Source: FactSet. Average of past three U.S. recessions beginning three months prior to the start of each of the official recession periods.

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