The US equity market as represented by the S&P 500 has shot up by 21% YTD. While double-digit growth is excellent, the market has become overvalued especially when compared to other developed markets. So for a value-oriented investor better opportunities exist elsewhere.
The S&P 500’s forward P/E is 21.0. This is much higher than the historical average of about 17.0.
Based on the MSCI Index values, the forward P/E for the US is 21.8 as shown in the chart below. This is much higher than the other developed markets such as Germany at 12.3. Though US markets always command a premium relative to other markets, the divergence has grown wider.
Click to enlarge
Source: Yardeni Research
The S&P 500 P/E ratio based on trailing 12-month earnings is nearly 30 according to the latest data from multipl.com.
Source: Multipl
For US investors it may be wise to be cautious at current levels. Certain parts of the market such as technology including the AI-fueled chip sector are overvalued to say the least.
Related ETFs:
- SPDR S&P 500 ETF (SPY)
- iShares Core S&P 500 ETF (IVV)
- Vanguard S&P 500 ETF(VOO)
- SPDR Portfolio S&P 500 ETF (SPLG)
Disclosure: No positions
