22 AUGUST 2025
Do current equity valuations reflect an overly-optimistic outlook?
The chart below suggests much of the good news is already priced in, at least if the period from 1985-2025 is anything to go by. The current PE ratio, indicated by the slim grey bar, implies that US stock market returns over the next decade will be muted.
Companies have a lot to live up to, whilst markets also have to believe that even more good news is in the pipeline, if returns are to turn out attractive from here.
Of course, that may well prove to be the case, especially if the AI transformation delivers as promised.
However, this all suggests we should temper some of the current enthusiasm (or FOMO) and think carefully about the outcome if reality ends up falling short of current expectations.
The content of this communication is for information purposes only. Bentley Reid believes that, at the time of publication, the views expressed and opinions given are correct but cannot guarantee replication of depicted performance. Viewers intending to take action based upon the content of this communication should first consult with the professional who advises them on their financial affairs. Capital invested will be at risk, and you may get back less than you invest. The past is not a reliable indicator of future performance. Neither the publisher nor any of its subsidiaries or connected parties accepts responsibility for any direct or indirect loss suffered by a recipient as a result of any action or inaction, in reliance upon the content of this communication.
Key trends in portfolio management
Is India Leaving the “Fragile EM” Era Behind?
Discussion on the unrest in the Middle East
