US equity valuations look stretched
March 6, 2018

US equity valuations look stretched, according to a brief note issued this morning by Patrick Moonen, Principal Strategist Multi Asset, NN Investment Partners.

"Surprisingly, US equities have shown continued relative strength in recent months, bolstered by positive economic data, expansionary fiscal policy, depreciation of the US dollar and a strong performing technology sector," he writes. 

"However, NN Investment Partners' analysis demonstrates a large premium across all key valuation metrics, which in many cases runs above historic averages. Whilst the US deserves a premium due to its higher long-term growth and market depth, NN Investment Partners believes that the current valuations compared to other markets are getting stretched, observing:

Despite impressive earnings growth figures (close to +20 percent expected in 2018) in the US, growth is of low quality, being artificially driven by the cut in the corporate tax rate and by a weaker dollar.

The US economy is moving late-cycle, whereas the eurozone is mid-cycle. This has implications for earnings and monetary policy expectations

"Positive economic data and business-friendly policies have boosted US equities to a hefty premium over other developed markets," he continues. "Given the point in the earnings cycle and the deterioration of earnings quality, we doubt such high premiums are fully justified."





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US equity valuations look stretched, according to a brief note issued this morning by Patrick Moonen, Principal Strategist Multi Asset, NN Investment Partners.

"Surprisingly, US equities have shown continued relative strength in recent months, bolstered by positive economic data, expansionary fiscal policy, depreciation of the US dollar and a strong performing technology sector," he writes. 

"However, NN Investment Partners' analysis demonstrates a large premium across all key valuation metrics, which in many cases runs above historic averages. Whilst the US deserves a premium due to its higher long-term growth and market depth, NN Investment Partners believes that the current valuations compared to other markets are getting stretched, observing:

Despite impressive earnings growth figures (close to +20 percent expected in 2018) in the US, growth is of low quality, being artificially driven by the cut in the corporate tax rate and by a weaker dollar.

The US economy is moving late-cycle, whereas the eurozone is mid-cycle. This has implications for earnings and monetary policy expectations

"Positive economic data and business-friendly policies have boosted US equities to a hefty premium over other developed markets," he continues. "Given the point in the earnings cycle and the deterioration of earnings quality, we doubt such high premiums are fully justified."



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