With the US Stock markets currently clearly in a bubble (CAPE (Schiller P/E ratio) at nearly 32 against a historical average of 16.8) and with Trump elected the financial outlook for the US is poor with inflation / stagflation extremely likely over Trump's term. I
Dr Schiller’s indicator does not identify bubbles, nor is it is market timing device. It indicates periods when if you invest in the market you should expect your return to be lower than if you had invested at a lower CAPE ratio.
And it’s debatable if US stocks, particularly tech leaders, are excessively priced. The Americans are just better and this is reflected in stock market values. Here's a general overview of the Return on Invested Capital (ROIC) for the "Magnificent Seven" US tech stocks, i.e. Apple, Microsoft, Amazon, Alphabet (Google), Meta Platforms, Nvidia, and Tesla. They all have elevated ROIC:
- Apple (AAPL): Approximately 27%
- Microsoft (MSFT): Around 30%
- Amazon (AMZN): Roughly 12%
- Alphabet (GOOGL): About 20%
- Meta Platforms (META): Approximately 25%
- Nvidia (NVDA): Around 35%
- Tesla (TSLA): Roughly 15%
So 5 companies have an ROIC of 20% or above.
Here are the Return on Invested Capital (ROIC) values for the top seven technology companies by market capitalization in the EuroStoxx50:
- ASML Holding: Approximately 25%
- SAP SE: Around 15%
- Siemens AG: Roughly 12%
- Schneider Electric: About 10%
- Dassault Systèmes: Approximately 14%
- Infineon Technologies: Around 11%
- STMicroelectronics: Roughly 13%
Only 1 company has a ROIC of 20% or above, as opposed to 5 US techs. The USA wins hands down on capital allocation.
If we look at company profitability, here are the individual Earnings Per Share (EPS) for the "Magnificent Seven" US tech stocks:
- Apple (AAPL): $6.11
- Microsoft (MSFT): $10.03
- Amazon (AMZN): $1.30
- Alphabet (GOOGL): $5.61
- Meta Platforms (META): $11.22
- Nvidia (NVDA): $3.34
- Tesla (TSLA): $3.62
Two companies have EPS of 10 USD or above per share.
Here are the individual Earnings Per Share (EPS) in USD for the top seven technology companies by market capitalization in the EuroStoxx50, converted at the current exchange rate of 1 USD = 0.95 EUR:
- ASML Holding: $20.14
- SAP SE: $5.92
- Siemens AG: $5.57
- Schneider Electric: $7.59
- Dassault Systèmes: $0.86
- Infineon Technologies: $2.66
- STMicroelectronics: $5.11
Only 1 company has an EPS of above 10 USD equivalent per share.
[All the above financial stats from asking Copilot a few questions, which I think shows an immediate efficiency benefit of AI.]
American stocks win hands down on capital allocation, generation of returns and payouts to shareholders. And this is assisted by efficient capital markets; and a pro-business, pro-innovation and pro-technology business environment fostered by American society. This benefits all American stocks with e.g. the S&P doubling in value between 2012 and 2021. And it benefits American investors, pensioners, etc.
I don’t see any reason to reduce one’s allocation to US stocks, although returns may not be as stellar in the immediate future.