US Equity Market The Most Expensive In The World?
As per SocGen US Stock Market current valuations very stretched. On
the basis of Price-to-Book (valuation) and return-on-equity
(profitability), the US equity market is extremely 'expensive'; and
"hoping" for further expansion on the RoE to save the day is whimsical
given the limits to leverage.
Via SocGen,
The chart below illustrates a strong and rational link between profitability (as measured by Return on Equity) and valuation (price to book value). The more profitable a market, the higher its valuation. Along with Switzerland, the US equity market generates the highest return on equity and profitability. Both markets have been considered a safe haven over the last few years.
Like for the valuation, the gap between the RoE for US financial stocks (9%) and non-financial stocks (17%) is huge. Excluding financials, US RoE is already back to a high level and has stopped rising over the last 2 years.
It was higher in 2007, but with much more corporate leverage.
And as we warned before - that leverage does not come for free as the credit cycle appears to have turned.
Via SocGen,
The chart below illustrates a strong and rational link between profitability (as measured by Return on Equity) and valuation (price to book value). The more profitable a market, the higher its valuation. Along with Switzerland, the US equity market generates the highest return on equity and profitability. Both markets have been considered a safe haven over the last few years.
Like for the valuation, the gap between the RoE for US financial stocks (9%) and non-financial stocks (17%) is huge. Excluding financials, US RoE is already back to a high level and has stopped rising over the last 2 years.
It was higher in 2007, but with much more corporate leverage.
And as we warned before - that leverage does not come for free as the credit cycle appears to have turned.
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