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U.S. Equities: Superior Profits, But Relatively Expensive – April 15, 2019

U.S. Equities: Superior Profits, But Relatively Expensive

While U.S. stocks have outperformed in recent years and offer many compelling attributes (superior economic growth, more favorable sector composition, and better profitability), they do not offer good value when measured against comparative profitability. In other words, the U.S. is now comparatively expensive even adjusted for its superior profitability, with several key sectors trading at or near all-time relative valuation premiums. These premiums would be difficult to sustain if the relative earnings trend shifts away from the U.S. as global growth momentum firms anew, which is our base-case scenario.

On a 6-12 month horizon, we recommend a mild underweight in U.S. equities, with select overweights in the EM, euro area and Japanese markets.