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Since hitting a record in February, the S&P 500 has ridden a roller-coaster ride. Yet after steep falls and rises, the index is unchanged since 5 March.
Burst bubble?
On 19 February 2025, the S&P 500 peaked at 6,147.43, before slipping. This peak didn’t last as share prices lost momentum. And after President Trump announced the highest US import tariffs since 1930, stocks crashed.
At its 2025 low on 7 April, the S&P 500 hit 4,835.04. This left the index down 21.3% in seven weeks — among its most brutal falls ever. However, this latest stock-market crash soon reversed, with prices soaring after Trump suspended new tariffs for 90 days.
The S&P 500 is not cheap
Throughout 2025, I warned that US stocks were expensive, priced for perfection and perhaps in bubble territory. In historical and geographical terms, they looked pricey. And even after recent weakness, the S&P 500 isn’t cheap.
On Thursday, 22 May, America’s main market index closed at 5,842.01. That’s around 5% below its record, driven by the strong comeback since 8 April. Today, it trades on 23.8 times trailing earnings, delivering an earnings yield of 4.2%. The dividend yield is 1.3% a year — versus 3.7% for the UK’s FTSE 100.
Looking ahead over the next 12 months, the index trades on 22.1 times expected earnings. This looks fully priced, making it risky for me to buy US stocks at such valuations.
A dirt-cheap US stock?
That said, I see pockets of value within US corporations. For example, take giant American retailer Target Corp (NYSE: TGT), whose stock has crashed since its 2021 high.
While other mega-retailers’ share prices have doubled, Target stock has missed this target by miles. On 14 November 2021, this S&P 500 share hit a record high of $268.98. Since this milestone, it’s been downhill all the way.
On Thursday, 22 May, Target shares closed at $95.06, valuing this once-mighty retail chain at just $43.2bn. Here’s the share-price changes over six timescales:
| Five days | -2.7% |
| One month | +3.2% |
| Six months | -27.2% |
| YTD 2024 | -29.7% |
| One year | -34.2% |
| Five years | -19.1% |
The Target share price has declined in five of these six periods, with few signs of it turning the corner. Nevertheless, according to Stein’s Law (from US economist and presidential adviser Herbert Stein), “If something cannot go on forever, it will stop”. As Target is unlikely to become worthless, I expect its share price to revive at some point.
At the current share price, this stock trades on under 10.5 times earnings, producing an earnings yield of 9.6%. Thus, its juicy dividend yield of 4.7% a year is covered a healthy two times by earnings — a solid margin of safety.
To me, these look like the fundamentals of a classic value buy for my family portfolio. Also, perhaps an activist investor might help turn this tanker around? Hence, though my wife and I already own Target stock, we are debating buying more.
Though I suspect that Target is near the bottom of this downturn, the shares could have further to fall. I worry that very high import tariffs could hit earnings in 2025/26, plus sales and margins are under pressure. Yet Target’s strong cash flow and solid balance sheet should support bumper dividends and more share buybacks for years to come!
