Summary
As worldwide markets are challenged in an environment of higher interest rates, ongoing conflict in the Middle East, and the lingering battle between Russia and Ukraine, one thing has not changed: U.S. stocks are more expensive than global stocks. And with the large run-up in stock prices in 2023 and 2024, U.S. stocks have become even more expensive. Consider P/E ratios. The trailing P/E ratio on the S&P 500 is 28, above the global average of 16 and well above the 8-14 average P/Es for emerging markets stocks in China and Latin America. A review of yields tells a similar story. The current dividend yield for the S&P 500 is 1.2%, versus the global average of 2.8% and European, Australian, and Latin American yields of 3%-6%. Other nations with higher-than-average P/E ratios include Australia (based on prospects for a Chinese recovery), Saudi Arabia (due to its energy holdings), and Canada (despite the risk of tariffs). Taking a step back, a few reasons that investors generally are willing to pay a higher price for North American securities include the transparency of the U.S. financial system as well as the liquidity of U.S. markets. What’s more, global returns can be volatile across individual count