According to the Crescat valuation model US equities are the most expensive in history. The valuation variables of the model are shown in the following table. Virtually all valuation variables are at or near the level of the 100th percentile, or the highest historical level.
US stocks driven by giant technology companies (FANG) have outperformed the rest of the world in recent years. Currently, however, they have reached such expensive levels that, according to our internal valuation model, imply average expected annual returns for the following years, including dividends, of only around zero.
For this reason, we have US stocks in our global equity allocation significantly underweighted and it can also be said that this is currently our biggest stock bet. We believe that in the foreseeable future there should be a process of mean-reversion, in which US stocks should significantly underperform the rest of the world in the coming years. As Nobel Prize-winning economist Richard Thaler has shown, past winners have a very strong historical tendency to become future losers.
Michal Stupavský
Investment Strategist at Conseq Investment Management, a.s.