How expensive are US equities?

That’s a bit of a clichéd question, admittedly. It’s made even more so by the fact that, with few exceptions, it’s been possible to answer it with the same word whenever it’s been posed for more than a dozen years running: “Very.” US stocks are very expensive.

The standing contention that US shares are overvalued hasn’t always been true, but someone’s always willing to make the case, a testament to a lot of things, including widespread investor buy-in to the narratives which emanate from the cottage industry in bearish agitprop which grew up out of Lehman’s ashes.

Of course, there’s a lot of truth to the idea that US equities are pretty much always expensive, although until the last two years, one point of pushback was the simple contention that bonds (and fixed income of all kinds) were even more expensive.

But what about right now? In the heat of the summer A.I. frenzy. How expensive, on an absolute and relative basis, are US stocks trading in what we’re still calling a new “bull market” for now? Well, the figure below gives you an idea.

US stocks are far and away the most expensive equity market on the planet, at least if you confine the comparison to Europe, Japan, AsiaPac and the broad EM gauge.

In a stark turnaround from what, at various intervals from 2012 to early 2020, was a totally bizarre bond market characterized by extreme anomalies including the appearance of negative-yielding “high” yield debt in Europe, bonds and credit are now cheap versus their 10-year histories. I suppose that’s not the best way to think about it, though — the lookback includes those extreme anomalies.

Note: Gilts are the cheapest asset on the board. Any takers?