S&P 500 Correction: Is American Express Stock a Buy After Plunging 20%?

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Reuben Gregg Brewer, The Motley Fool

Mon, Mar 17, 2025, 6:09 AM 5 min read

The S&P 500 index (SNPINDEX: ^GSPC) fell into correction territory connected March 13. So, similar the Nasdaq Composite (NASDAQINDEX: ^IXIC), it has declined 10% from its highs. That has immoderate investors disquieted that there's much downside to come. But 10% is thing compared to the astir 20% driblet that American Express (NYSE: AXP) has experienced. Why is it down truthful overmuch much than the market, and is it a bargain aft the large plunge?

Howard Marks, who correctly foresaw and made a ton of wealth during the Great Recession, writes extensively astir the market's inclination to rhythm betwixt extremes. You tin work each astir his thoughts successful his iconic publication The Most Important Thing and its somewhat iterative sequel Mastering the Market Cycle. Without getting excessively heavy into the details, Marks explains that emotions thrust radical to some overly enthusiastic pricing astatine 1 utmost and overly despondent pricing astatine the other.

A idiosyncratic with their hands up successful frustration.

That's the aforesaid connection that Benjamin Graham offers with his communicative of Mr. Market. But Marks' large constituent is that the marketplace seldom settles connected the mediate constituent of the pendulum betwixt excessively costly and excessively inexpensive due to the fact that it is perpetually sweeping backmost and forth. And, here's the amusive part, it is intolerable to precisely cognize wherever you are connected the pendulum's plaything astatine immoderate fixed time. So what bully is Mark's analogy? He believes you conscionable request to cognize astir wherever you are astatine immoderate fixed clip to marque dependable concern decisions.

You mightiness beryllium a small aboriginal oregon a small late, since precision is impossible. But being astir close is much than capable to assistance you marque a batch of wealth connected Wall Street. So what astir the dual corrections successful the S&P 500 scale and the Nasdaq Composite? Given the still-high level of the market, this is apt conscionable an denotation of the temper shifting from enthusiasm to pessimism. After all, a correction is conscionable a halt connected the mode toward a full-fledged carnivore market, indicated by a 20% decline. So what astir the 20% driblet successful American Express, which equates to that banal falling into its ain idiosyncratic carnivore market?

American Express' caller highest was connected Jan. 23, 2025. At that constituent the price-to-sales ratio was astir 3.5 and the price-to-earnings ratio was astir 23.2. Alone, those numbers don't mean much, truthful they request examination points. The five-year averages for those accepted valuation metrics are 2.5 for the P/S ratio and 18.3 for the P/E.

Both of those comparisons suggest that American Express was costly astatine the peak, which besides happened to beryllium the stock's all-time high. As noted, the banal has pulled backmost sharply since that point, having mislaid astir 20% of its value. This is much than the index's loss, but it isn't antithetic for Wall Street to dump the biggest winners erstwhile the temper shifts successful a antagonistic direction. In fact, that's usually what happens erstwhile the marketplace pendulum changes direction. At this point, American Express' P/S ratio is down to astir 2.7 and the P/E is coming successful astir 18.3.