Daily Spotlight: Global Stocks at a Discount to U.S. Stocks

Summary

As worldwide markets struggle in the environment of higher interest rates, 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 late 2023 and the first half of 2024, U.S. stocks are even more expensive. Consider P/E ratios. The trailing P/E ratio on the S&P 500 is 27, above the global average of 14 and well above the 6-12 average for P/Es on stocks in emerging markets. A review of yields tells a similar story. The current dividend yield for the S&P 500 is 1.3%, versus the global average of 2.8%, and Asian, Australian, and Latin American yields of 3%-5%. The foreign region that does not completely fit the pattern is the Middle East. The average P/E on a stock in Saudi Arabian is a relatively high 16.5. This can be blamed on high oil prices. One reason investors generally are willing to pay a higher price for North American securities is the transparency of the U.S. financial system as well as the liquidity of U.S. markets. As well, global returns can be volatile across individual countries, given currency, s