The US stock market’s October valuation was the highest since September 2018, according to the Shiller PE ratio, compiled by the Nobel prize-winning economist Robert Shiller.
Valuations were only higher in:
Ø September 1929 (just before the Wall Street Crash)
Ø 1997 to 2001 (the dotcom boom and bust)
Ø December 2017 through to September 2018 (President Trump’s corporate tax cut from 35% to 21% was signed into law in December 2017)
The US has been the best performing major market of the last ten years, but UK fund investors are significantly underweight the US, and overweight the UK.
Laith Khalaf, financial analyst at AJ Bell: “The valuation of the US stock market is pretty eye-watering by historical standards, but what’s particularly remarkable is that such a lofty premium has been achieved at a time of extreme stress for the global economy.
“A buoyant US stock market in the face of such economic adversity can be put down to ultra-low interest rates, fiscal stimulus, and the impervious sales growth of the big tech companies that sit atop the S&P 500. The FAANGs, and Microsoft, just six companies, currently make up 25% of the S&P 500, up from 7% ten years ago.”