Global Price to Earnings ratio for United States stocks (incredibly expensive) vs. everything outside the United States (inexpensive). My portfolio (heavily weighted toward foreign stocks) is betting that the alligator jaws will close at some point in the future:
Some additional context to the chart above from Cliff Asness this week in Barron’s:
“Since the early 1990s, about 80% of the U.S. dominance has come from relative price/earnings multiple expansion versus non-U. S. stocks. People were paying less for the U.S. at the beginning, and now they are paying considerably more. Maybe that is justified; maybe things like U.S. tech dominance are real. But justified doesn’t mean repeatable. Justified at best means something isn’t going to reverse in a big way. Looking to the future, the case that the U.S. will have permanently higher equity returns is pretty untenable. Even if U.S. companies are worth it, they are priced as such.”
It’s not just foreign stocks that are cheap relative to U.S. stocks. The ratio of commodity prices to the S&P 500 is at historic lows:
A snapshot of how expensive U.S. stocks are relative to the most expensive moment in history (2000), second only to 1929:
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