The valuation gap between US stocks and those in the rest of the world is now at the highest level on record

  • The US S&P 500 hit its highest level on record on Friday, and is up 16.1% from the 2018 lows struck in February this year.
  • The ongoing rally has left US stocks richly valued compared to those in other markets.
  • BAML says while US stocks remain expensive versus history across most valuation metrics, fundamentals continue to support.

US stocks continue to overcome everything put before them, hitting fresh record highs last week.

In contrast, stocks in other regions have fared significantly worse this year, faltering amidst rising global trade tensions and increased nervousness about the outlook for emerging markets.

As Bank of America Merrill Lynch’s (BAML) US Equity and Quant Strategy team notes, the divergence this year has left US stocks richly valued compared to those in other regions.

“On earnings, the S&P 500 now trades at a 12% premium to MSCI ACWI [all country world index] ex US, a high since 2009, and trades at a premium versus each of the major global regions — Europe, Japan, and emerging markets — concurrently for the first time since 2009.”

And when it comes to book valuation, the premium attached to US stocks compared to those in other markets is now the highest level on record, hitting a multiple of 2.1 times as at the end of August.


The price-to-book ratio reflects the value investors attach to a company’s equity relative to the book value of its equity, or the difference between its assets less liabilities.

Right now, BAML says US stocks remain expensive across most valuation metrics “except on growth, cash flow, and relative to bonds”.

However, it adds that fundamentals continue to support the US “as it is the only region with more positive earnings revisions than cuts”.