09 JANUARY 2025
US equities produced strong double-digit gains in 2024, for the second year running, but a host of sentiment and valuation metrics are starting to look stretched.
Take the chart below as an example.
It shows the S&P 500’s cyclically-adjusted (CAPE) ratio since the early 1900s. It has risen from 31x to 38x in the last 12 months alone.
Over the past century it has only been higher on three occasions; 1929, 1999 and 2021. Each episode marked a major bull market peak, followed by pronounced share price declines.
At face value the current level of overvaluation warrants extreme caution and suggests, at a minimum, the prolonged period of US equities outperformance is nearing an end.
However, all three of those bear markets were triggered by Central Banks hiking interest rates aggressively.
The opposite is happening this time around with rate cuts and other liquidity support measures set to endure throughout 2025.
We are thus in unchartered territory, which means this CAPE ratio (and share prices) could yet rise a lot further.
The content of this communication is for information purposes only. Bentley Reid believes that, at the time of publication, the views expressed are a matter of 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.
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