Are US stocks overvalued?

Avoid the “widow-maker” trade.

US stocks have trashed the rest of the world over the past 15 years:

It’s become fashionable to predict a reversal in this trend.

Here’s the number one argument:

US stocks are overvalued compared to international stocks.

The average international stock (as measured by the VEU ETF) trades at Price-to-Earnings (PE) ratio of 15.4.

On the other hand, the average S&P 500 stock trades at “high” PE ratio of 27.

Some might say this clearly shows US stocks are expensive. But here’s what’s wrong with this statement. The best companies in the world are found in America. It makes sense that they demand a higher valuation multiple.

There are so few great, fast-growing businesses outside America’s shores that I can count them on two hands.

US stocks continue to lead because American businesses are dominating. Look at the world’s most profitable companies. Talk about American exceptionalism:

America is still the only country in the world where a poor immigrant kid like Jenson Huang (CEO of Nvidia) can go start a multitrillion-dollar company. That’s why I expect US stocks to stay on top for a while longer.

Bottom line: Don’t be one of those investors who refuses to own US stocks because they’ve run up so much. The world’s best businesses should be “expensive.”

***

P.S: Above was an excerpt from my investing letter The Jolt⚡.

Click here to learn more about it and subscribe.

I publish fresh research every M/W/F.

Stephen McBride, Chief Analyst at RiskHedge