U.S. equities are still the most expensive

In this case looking at a different metric still leads to the same general conclusion: relative to the rest of the world, the US equity market is the most expensive. As of 4Q23, looking at a combination of advanced economies and emerging markets included in MSCI equity market indices, the US has the highest CAPE ratio of any below. All the major emerging markets (key ones light blue) and advanced economies (key ones dark green) that have MSCI coverage are included. The closest counterpart to the US (red) was predictably Japan (orange), but really no other majorly relevant global equity market seems too close.

For those unfamiliar CAPE refers to cyclically adjusted earnings, which is useful to remove any volatility from factors like seasonality in the general price to earnings (P/E) ratio. In simple terms, CAPE is an earnings valuation metric and again it’s asserting the US equity market is more expensive than any global counterpart.

Even though US equities certainly went through long stretches of highly impressive growth, which translated to speculator returns for some investors, unfortunately I think we’re approaching the end of a secular bull market. The US macroeconomic setup looks questionable at best, yet valuations are priced for very robust growth. I don’t think that combination will end well for those who are putting all their faith in the broader US equity market alone. Time will tell.