The main US stock index S&P 500 yesterday reached a new all-time high at 3939 points. According to this index, US stocks so far this year attribute a gain of 4.9% and in March the gain is 3.4%.
Within our global equity allocation, US stocks are currently significantly underweighted against benchmarks, as we believe that US stocks will perform significantly worse than global stock indices such as MSCI All Country World in the coming period.
This attitude is based primarily on valuation reasons. Simply put, US stocks are, in our view, currently extremely overvalued. This is illustrated by the following table. The valuation index leading P/E of the S&P 500 index is currently 22.8, while the average since 2010 is 16.7. According to this valuation indicator, therefore, US stocks are currently overvalued by approximately 36%. And it is precisely valuations that are key to the expected average annual returns over the medium term of five years.
Michal Stupavský
Investment Strategist at Conseq Investment Management, a.s.