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

The S&P 500 index (^GSPC 2.13%) fell into correction territory on March 13. So, like the Nasdaq Composite (^IXIC 2.61%), it has declined 10% from its highs. That has some investors worried that there’s more downside to come. But 10% is nothing compared to the roughly 20% drop that American Express (AXP 3.59%) has experienced. Why is it down so much more than the market, and is it a buy after the big plunge?

Investors are painfully predictable

Howard Marks, who correctly foresaw and made a ton of money during the Great Recession, writes extensively about the market’s tendency to cycle between extremes. You can read all about his thoughts in his iconic book The Most Important Thing and its somewhat iterative sequel Mastering the Market Cycle. Without getting too deep into the details, Marks explains that emotions drive people to both overly enthusiastic pricing at one extreme and overly despondent pricing at the other.

That’s the same message that Benjamin Graham offers with his tale of Mr. Market. But Marks’ big point is that the market rarely settles on the middle point of the pendulum between too expensive and too cheap because it is constantly sweeping back and forth. And, here’s the fun part, it is impossible to exactly know where you are on the pendulum’s swing at any given time. So what good is Mark’s analogy? He believes you just need to know about where you are at any given time to make sound investment decisions.

You might be a little early or a little late, since precision is impossible. But being about right is more than enough to help you make a lot of money on Wall Street. So what about the dual corrections in the S&P 500 index and the Nasdaq Composite? Given the still-high level of the market, this is likely just an indication of the mood shifting from enthusiasm to pessimism. After all, a correction is just a stop on the way toward a full-fledged bear market, indicated by a 20% decline. So what about the 20% drop in American Express, which equates to that stock falling into its own personal bear market?

Is American Express a buy yet?

American Express’ recent peak was on Jan. 23, 2025. At that point the price-to-sales ratio was about 3.5 and the price-to-earnings ratio was roughly 23.2. Alone, those numbers don’t mean much, so they need comparison points. The five-year averages for those traditional valuation metrics are 2.5 for the P/S ratio and 18.3 for the P/E.

AXP data by YCharts

Both of those comparisons suggest that American Express was expensive at the peak, which also happened to be the stock’s all-time high. As noted, the stock has pulled back sharply since that point, having lost around 20% of its value. This is more than the index’s loss, but it isn’t unusual for Wall Street to dump the biggest winners when the mood shifts in a negative direction. In fact, that’s usually what happens when the market pendulum changes direction. At this point, American Express’ P/S ratio is down to around 2.7 and the P/E is coming in around 18.3.

American Express’ stock has fallen back to a more reasonable valuation level, but it still doesn’t look cheap. A less traditional valuation metric, dividend yield, tilts the balance here, given that the current 1.2% yield, while more attractive than it was in January, is still toward the low end of the company’s historical yield range. So it looks like, at best, investors are paying full price for American Express today. But, more likely, the stock is still a bit on the pricey side of the ledger.

American Express is not a screaming buy even after its big decline

If you are a value investor, American Express won’t interest you; the pendulum hasn’t swung far enough to that side of the spectrum. If you are a dividend investor, it probably won’t interest you, either. The yield is more attractive than it was but still isn’t high for American Express or high on an absolute basis. A growth investor who believes American Express can continue to expand its business, even in the face of increasing economic uncertainty, might be interested, but you’ll likely be paying something close to, or slightly above, full fare to ride this train. Given the uncertainty in the market, the economy, and more broadly the world, that may not be the best choice to make right now.

In the end, Marks’ pendulum analogy suggests that American Express’ valuation is in a state of flux as it moves from one extreme toward the other. Interestingly, Graham’s student Warren Buffett owns American Express stock — but when the Oracle of Omaha started his position in 1991, the P/E was below 10. At that valuation level American Express would be very interesting, but for now it doesn’t appear to be far enough along in its valuation swing to make the stock a screaming buy for anyone.