Are US stocks too expensive?

US stocks have rallied since Donald Trump's election win, but starting valuations are so high that analysts forecast weak performance over the next decade. Is this the dot-com bubble 2.0?

The New York Stock Exchange is seen during afternoon trading
(Image credit: Michael M. Santiago/Getty Images)

Investors searching for a coherent economic policy in Donald Trump’s pronouncements “are about as likely to find enlightenment as soothsayers poking around in the entrails of a sacrificial goat”, says Ben Wright in The Telegraph. That hasn’t stopped US stocks from rallying since his election win. You might think the president-elect’s talk of tariff wars and mass deportations would be giving investors pause. Instead, they have been frenetically pulling funds from Europe and emerging markets and piling into Wall Street. Money managers seem to have concluded that Trump’s return means there is no alternative to US stocks.

Wall Street has been having a “phenomenal” year, with the S&P 500 up 27% and the Nasdaq 100 rising 29%, says the Novel Investor blog. The last two years have been unusually “calm”, with few big sell-offs. Just remember that such tranquil bull markets can induce complacency, encouraging investors to take on more risk than they would otherwise feel comfortable with. Markets are said to climb a “wall of worry”, meaning that though dogged by anxieties they nevertheless tend to rise, says Ben Carlson in his A Wealth of Common Sense blog. That was the case for much of this year, with robust gains despite weak measures of market sentiment. Yet since the US election, the mood seems to have shifted. “Animal spirits” have awakened and signs of froth are multiplying.

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Markets editor

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019. 

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere. 

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful. 

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.