Some US shares may be overpriced, but there’s still value to be had in American equities.
Investors in the US stock market have been the biggest winners in the 12 years since the financial crisis. Shares in the MSCI USA Index, home to some of the largest companies in the world, are up 641 per cent since the market low of March 9, 2009. In comparison, stocks from the rest of the world, measured by the MSCI World ex USA index, rose 246 per cent in that time.
A gap has remained between the two since the pandemic: US share prices have risen 60 per cent since March 16 last year while the rest of the world’s stocks are up 45 per cent.
Even when markets were wobbling in February, the S&P 500, a collection of the largest listed firms in the US, was hitting record highs. It shot past 4,000 for the first time on April Fool’s Day and has continued to advance since.
Investors are now starting to ask if US shares have become too expensive.
On some metrics the MSCI USA index has only been more expensive once in its history — in the run-up to the dotcom bust in 2000, when investors piled into unprofitable tech stocks en masse.
Today excesses seem abundant, whether that’s from investors putting billions of dollars into special purpose acquisition companies (Spacs),
which float on the stock market and then look for a private company to merge with; meme stocks such as GameStop; or cryptocurrencies invented as a joke, such as Dogecoin.
“It is story time in America. The better the story, the better the stock,” said Eric Lynch, a co-manager of the Oyster US Value fund. “Not since the tech bubble have earnings become so disconnected from stock prices.”