Here is a recent chart from Societe Generale looking at the cyclically adjusted P/E ratio (CAPE). This is the price of the stock market divided by an average of the earnings over the last 10 years. It is meant to smooth out the inevitable volatility in earnings. What we see is that the US is basically in-line with the average over the past 30+ years, while Europe is at some of the lowest levels since the early 1980s.
Greenspring has a neutral weighting here, but I think it warrants some additional research.
Source: Société Générale
After this nice rally, US stocks aren’t cheap, according to the popular CAPE valuation metric, which averages the last 10 years of earnings in the P/E ratio. As you might expect, many European and beaten down EM countries are undervalued historically speaking. This doesn’t mean that the rally will stop or the lower valued countries will start to outperform, just that there is added risk, since P/E expansion is less of a probability from here.
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