The US stock market is expensive. Does anybody care?
The S&P 500 is up more than 50 per cent over the past two years, its best two-year run since 1997-98, before the eventual bursting of the dotcom bubble.
In contrast, things have been more staid outside the US. Consequently, says Creative Planning strategist Charlie Bilello, the US now trades at more thanr 22 times estimated earnings, compared with 14 for non-US markets – the widest valuation gap in history.
Irish economist Michael O’Sullivan, formerly of Credit Suisse, is concerned by “stratospheric” US valuations. He expects a “very meaningful rotation” from US stocks to cheaper markets, especially Europe, in 2025, with the election of Friedrich Merz as German chancellor in February a potential catalyst.
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However, most investors appear unbothered by US valuations. American consumers are in bullish mood, with a record number expecting stocks to advance in 2025.
Bank of America’s (BofA) most recent fund manager survey shows the attitude is one of “max Americana”, with a record-high allocation to US stocks and a record-low allocation to cash.
Current sentiment resembles that seen in early 2002 and early 2011, says BofA, which were both “huge tops in risk assets”.
Will this time be different? Perhaps, but high valuations and euphoric sentiment suggests US market risks are rising in 2025.
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