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US Equities’ Valuations Decline on Global Data: Week Ending June 5

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Aug. 18 2020, Updated 6:27 a.m. ET

Higher valuations

Currently, US equities (SPY) are trading at 17.7x on a one-year forward earnings basis. Valuations decreased by 0.78% in the week ending June 5, 2015. These were revised because of external macroeconomic situations. Greece opted to delay its debt along with three other June payments until the end of the month. The ECB’s (European Central Bank) President, Mario Draghi, stated that Europe should get used to volatility after inflation picked up. This led to decline across global bond markets and equities.

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Earnings affect valuations

US equities witnessed mixed earnings announcements in 1Q15. Asset managers for select sectors, like technology, announced good results. Industrials and manufacturing reported weak results.

The US reported that its trade gap declined by 19.2%—the sharpest drop in more than six years—to a seasonally adjusted $40.9 billion in April. Imports fell 3.3%, while exports expanded 1%. This boosted the expectations for US GDP (gross domestic product) growth in the second quarter.

Unemployment rose to 5.5% in May from 5.4% in April. In May, auto sales were the highest in ten years. US consumers bought 17.71 million vehicles at a seasonally adjusted annualized pace.

Alternative asset managers—including Blackstone (BX), Carlyle Group (CG), and KKR (KKR)—are offering attractive alternative investment options to investors seeking higher returns in the low interest rate scenario.

Current valuations have priced in the outperformance of US equities against European (EFA) and Asian equities (EEM). However, with the announcement of reforms by major emerging economies and QE (quantitative easing) by the ECB in Europe, investors are betting big on equities outside the US, especially on emerging markets.

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