Don’t go too big on the US stockmarket

The US stockmarket has been very expensive for a long time. Yet history suggests there’s no reason for this.

935_MW_P16_Strategy_Main-2

Don't be tempted: the US is overvalued

Here at MoneyWeek we've been pointing out for some time that the US stockmarket is rather expensive relative to its history. Our favourite measure is the cyclically adjusted price/earnings ratio (Cape). This compares the current price of a market with its average earnings over ten years. Using the average means that you get a fuller picture (earnings obviously fluctuate with the economic cycle, so taking a single year can be misleading). Today the Cape on the US marketis higher than at almost any time other thanthe peak of the tech bubble, which was one ofthe biggest stockmarket bubbles in history.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.