But it added: “However, as accommodative monetary policy will slowly phase out and the US dollar has strengthened, the country will have to embark on a range of reforms to ensure that productivity growth picks up.”
While the S&P 500 at a valuation premium to the MSCI Europe of 13x, based on forward-looking price/earnings, Coombs and Shah said headline valuations do not tell the full story, and need to take into account factors such as sectoral imbalances.“
For example, index valuations are distorted by the dominance of banks in Europe and technology in the US, which depress or augment market valuations. Technology stocks have four times the weight in the US than in the European index.”
With a nod to the long-running Stellar Artois advertising campaign that began in the 1980s, Coombs called US stocks “reassuringly expensive”, given their higher quality earnings.
He explained: “Earnings are a key component of p/e ratios as well as prices. Fundamentals are stronger in the US on three counts when compared to Europe: earnings growth, earnings breadth and return on equity.”
