And, it would seem, the reactions have been underwhelming.
As Coutts global equity strategist James Butterfill pointed out in a note on Thursday, while it looks as though US earnings will once more beat expectations, these expectations had been dramatically scaled back on the back of another extreme winter.
“It would be cold comfort for US equity investors if results beat overly gloomy expectations,” he said, adding that the firm continues to favour Europe.
An even more extreme view of the state of the US market came from Societe Generale perma-bear Albert Edwards who pointed out in a recent note that over the past six years the S&P 500 has gained more than 200%.
Kevin Murphy, co-manager of the Schroder Recovery Fund, commenting on Edwards’ views that the US market is overvalued, saying in a post on The Value Perspective blog: “we certainly share his view that investors now need to be approaching the S&P 500 with a significant degree of caution.”
But, he added: “We just think that, if he really wants to make people nervous about US equities, there are better ways of doing so.
For Murphy the cyclically adjusted price/earnings ratio (CAPE) of the US market is worrying, because it currently trades on a multiple of 27.8x.
“That ranks it in the 96th percentile of valuation – in other words, very expensive indeed.”
On a more traditional PE ratio level, Murphy says, the market is as expensive as it has ever been since 1950, which is the earliest point for which this data is available. Put simply, on this measure, the average stock in the US market is even more expensive than it was in … 1999.”
