It’s been a long time since value investors had real bargains outside the United States. For the better part of the past decade, the U.S. market has been the world’s locomotive, pulling portfolios higher with relentless earnings growth, endless liquidity, and a stream of capital that treated American equities like the only game in town. But tides have a way of turning quietly. According to a new report from J.P. Morgan Asset Management, “Narrowing the gap: U.S. exceptionalism and developed markets,” the dominance of U.S. stocks is starting to lose its absolute stranglehold.
The U.S. has had structural advantages that were real and powerful. The dollar’s reserve status, the depth of American capital markets, an innovation ecosystem that attracts global talent, and energy independence all helped justify premium valuations. But valuations have run so far ahead that they’re now pricing in perpetual exceptionalism. With the S&P 500 trading at elevated CAPE ratios, price to book multiples well north of historical averages, and mega cap earnings increasingly dependent on narrow leadership, the risk/reward calculus for buying broad U.S. equities at current levels has shifted unfavorably.
