2017 has been good for US equities, but most of the performance is related to the technology sector… Valuation are stretched but could continue to be so for a while, as long as macro/monetary backdrop is supportive.
From Barclays US Equity Strat team:
« The global growth recovery and improving corporate fundamentals have supported the 18% return in global equities this year. While global valuations expanded modestly in H2 17 across all regions, fundamentals continue to improve. EM and US valuations increased most this year, driven by the technology sector.
Concerns about elevated multiples in the US are not new, and a shock to the profit cycle is a likely prerequisite for a sustained valuation decline. Earnings growth is strong, supported by the macro backdrop and a weaker USD, and while the pace of growth is moderating, consensus earnings revisions have held up well. Overall, we think fundamentals still support equities and pro-cyclical positioning.
Tax reform could impair multinationals’ outperformance: recent tax proposals target multinationals with high foreign earnings deferrals, but for most of the year these companies have outperformed. The theme looks stretched and progress on a tax plan could be the catalyst that sets a reversal in motion. »
A look at how valuation multiples have stopped expanding the way they did in the past… No sign of exuberance there yet ?