American stocks may be expensive by historical metrics, but those who attempt to find value by tapping into other developed markets may be getting an even worse deal.
On one hand, the S&P 500's forward price-to-earnings ratio of 16.9 and forward price-to-sales ratio of 1.77 sounds high compared with the Euro Stoxx 50 P/E of 15.6 and P/sales of 1.10. And while Japan's Nikkei 225 index is actually trading at a higher earnings multiple of 18.9, its price-to-sales ratio is just below 1. (Numbers are per FactSet)
But the flipside is that according to some market analysts, European and Japanese stocks have soared lately without the economic fundamentals to back them up.
American markets "have less downside, because there isn't as much of this QE betting as there has been in Europe and Japan," commented Ilya Feygin, managing director and senior strategist at WallachBeth Capital. "If we do get a pullback, I think the U.S. will weather it better than those areas that are a bit more stretched."
The European Central Bank and that Bank of Japan are embarking on stimulative quantitative easing programs, whereby central banks create money and buy assets with it, in an attempt to improve the economy by driving down interest rates and counteracting potentially disinflationary forces. The Federal Reserve ended its own QE program in 2014.
Feygin prefers American stocks because the U.S. is now better supported by the economic fundamentals, whereas Europe and Japan have become QE-needy trades.