Chart of the Week - US Exceptionalism
For the past decade it seems all roads across the Global capital markets have lead to America. And in all fairness this has been entirely the right path to travel, at least when it comes to investment returns.
After staring into the abyss in 2008/09, a great reset in valuations across US asset classes set the scene for great opportunity to come from great crisis.
A few other things did, in hindsight, go very well for America throughout this period. There was massive and prolonged monetary stimulus from the Federal Reserve (along with fiscal stimulus in the early stages of the economic recovery), capital flight from Europe as it dealt with rolling crises, and there was also a literal and metaphorical striking of oil (the shale oil boom, and striking tech stock oil with the rise and global dominance of the US Big Tech oligopoly).
This was only further extended in the wake of the pandemic, punctuated by a brief dip, and powered up by stimulus checks, global monetary easing (again; with much of global capital finding its way to America), and subsequent rounds of fiscal stimulus (including the Biden era economic policies).
It’s important to understand this history and the path we took to get here, but the bigger story is what may come next.
While it’s impossible to know the path that the economy and policy and geopolitics will take in the coming decade, it is by contrast easy to know the valuation picture and what this means for forward-looking probabilities. This is shown in the chart below.
The chart, which was featured in our Q1 Strategy Pack, shows the average valuation score across US Equities (our $.SPX(.SPX)$ valuation indicator), US High Yield Credit (credit spreads inverted), the US Dollar (our DXY valuation indicator), Property (US housing market valuation indicators), and Treasuries the exception are shown inverted because the time when people want to own treasuries is usually the opposite to the time when people want to own stocks.
The extreme cheap asset market valuations of March 2009 set the scene for the glory of the past decade and a half, and as I noted a lot went right to help things along from there. The extreme expensive asset market valuations of December 2024 by contrast set an all-time high and surpass both the dot com bubble and the pre-financial crisis housing bubble heights. Regardless of what goes right or wrong in the coming years on the macro front, US assets right now are priced for exceptional. This is your prompt to pause and think.
Key point: US Asset market Valuations have reached Exceptional heights.
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