‘While valuations in most markets have come down this year, only the U.S. looks increasingly expensive,’ Goldman said.
U.S. stocks have outperformed most other global markets in recent years. But now we’re starting to look more risky, say Goldman Sachs strategists led by Guillaume Jaisson.
“We believe the risks are growing in the U.S. on a relative basis,” they said in a commentary replying to customer questions. “While valuations in most markets, such as Europe, Japan and emerging markets, have come down this year, only the U.S. looks increasingly expensive.”
That partly reflects sector weighting differences, the strategists said. But, “the premium of the U.S. equity market has actually increased vis-a-vis the rest of the world even when we compare these markets on a sector-adjusted basis,” they said.
“Equally, the unusually high concentration of stocks within the S&P 500 leaves it more vulnerable to pressures coming from anti-trust regulation or higher bond yields.”
The 10-year Treasury yield already has risen to 1.73% from 1.51% Dec. 31. The Federal Reserve appears poised to raise interest rates as soon as March, and Goldman economists predict four Fed rate hikes this year.
The Goldman strategists anticipate better performance in many overseas stock markets than in the U.S. this year.
Their 2022 forecast calls for an 11% return for the S&P 500, compared to 14% for Europe’s STOXX 600 index, 17% for the MSCI AC Asia Pacific ex Japan Index and 15% for the Tokyo Stock Price Index (TOPIX). All the returns are in local currencies.
On Wednesday, U.S. stocks powered higher, as investors digested news of last year’s 7% surge in consumer prices.
