EWJV - VT: U.S. Valuations At 1997-2001 Highs Mean Headwinds For Global Stock Returns

• The Cyclically Adjusted Price-to-Earnings (CAPE) ratio of the US equity market is back above 35, a level last seen just before the 2000-2002 bear market.
• While high valuation multiples don't necessarily mean low or negative future returns, higher multiples do require higher future growth rates to sustain returns.
• This article updates several scatterplot charts showing the historic tendency of high starting CAPE ratios to mean lower returns for the next 10 years and vice versa.
• While value stocks have tended to outperform growth stocks in 10-year periods following a high starting CAPE ratio, I prefer to look at foreign markets with even better valuation metrics.
• For comparison, I also plot the CAPE ratio vs. following 10-year stock return scatterplots for four foreign markets: Singapore, Hong Kong, Japan, and Europe.

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