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Tuesday, August 26, 2014

The US Stock Market Looks Expensive..What About Markets Around the World ?

The  US stock market continues to rise and despite good reported earnings for the second quarter valuations seem stretched.

Here is the earnings growth of the sp/500 which at 14.99% is well below the long term mean of 28%
All charts from

And the S+P 500 p/e ratio which at 19.85 is 28% above its long term median of  15.5:

Since august of last year the S+P 500 total return is up 22% but earnings rose 15% that means that over 1/3 of the appreciation in the stock market was driven by P/E expansion (higher valuations) rather than earnings growth,

I have written before about Robert Shillers CAPE ration (his recent nyt article is here   ) in the article he argues the US stock market as very highly valued

As shown in the  chart. at 26.48  the current value is well above its long term mean value of 16.55

How does the Us market valuation based on CAPE compare to other markets around the world. A useful  i article over at seeking alpha gives some interesting data in this table of comparable CAPE ratios around the world (table below text)

Although many of these markets certainly deserve a healthy discount to the US due to political and other sovereign risk the US stlll stands out as one of the three markets in the world with the highest CAPE trading at  a very large premium to some of the world's major stock markets.

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