US Stocks Are Overvalued Relative To Other Developed Markets

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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.

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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:

  1. SPDR S&P 500 ETF (SPY)
  2. iShares Core S&P 500 ETF (IVV)
  3. Vanguard S&P 500 ETF(VOO)
  4. SPDR Portfolio S&P 500 ETF  (SPLG)

Disclosure: No positions

Notes on Automotive Employment in the European Union

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The automotive industry is one of the largest industries in the EU employing about 13 million people both directly and indirectly according to data by ACEA. Out of the 12.9 million jobs, 2.4 million are direct jobs while the rest are indirect employment. To put it another angle, the auto sector accounts for 3.1 million manufacturing jobs.

In six member countries, the industry accounts for more than 10% of the manufacturing jobs as shown in the chart below:

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From an absolute number point of view, the top three countries in direct employment Germany, France and Poland in that order. More than 860,000 Germans are employed in the auto industry. Among the former East European countries, Poland, Czech Republic and Romania have significant number of auto sector workers.

Globally Europe produces less than one-fifth of autos manufactured.

The chart below shows the number and location of auto plants in the EU:

Source: The Automobile Industry Pocket Guide 2023/2024, ACEA

Related:

S&P 500 vs. NASDAQ vs. Dow Jones Returns: Chart

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Equity markets are performing very well so far this year. After a dramatic selloff in July and early August, markets have recovered and continue to reach record highs. Some of the individual stocks have soared much more than than the S&P 500’s 21.0% YTD. With that said, I wanted to see how the three major indices of the US markets have grown this year and the past five years. While the main benchmark of the market is the S&P 500, the NASDAQ and Dow have also had double-digit returns this year.

The following chart shows the price returns of S&P 500 vs. NASDAQ Composite vs. Dow Jones Indices YTD:

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Source: Google Finance

The chart below the 5-year returns for the above three indices:

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Source: Google Finance

It remains to be seen if the markets would continue to move higher through the last quarter or remain at current levels. With interest rates starting to go down and chances of recession remaining unlikely it may not be a bad idea to nibble at quality names especially when there is any major declines. Valuations no doubt are at stretched for most stocks. So despite consistent high earnings investors may not be willing to bid up stocks even more from current prices.

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • Vanguard S&P 500 ETF (VOO)
  • Invesco QQQ Trust ETF (QQQ)
  • SPDR Dow Jones Industrial Average ETF Trust (DIA)

Disclosure: No positions

Australian Stocks – Nominal Total Returns from 1900 to 2023: Chart

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I have written about historical annual returns of the Australian equity markets a few times before. Recently I came across a chart showing the nominal total returns of Australian stocks from 1900 to 2023. According to this chart, the Arithmetic Mean Nominal Total Return was 11.7% per year which is very good. In the past 124 years, Aussie stocks have yielded a positive return 78% of the time. The worst year in terms of decline was in 2008 during the GFC when they crashed by over 40% as shown in the chart below:

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Source: Owen Analytics via Morningstar, Australia

Related ETF:

  • iShares MSCI Australia ETF (EWA)

Disclosure: No Positions