Fund Picks for an Expensive US Stock Market

US equities look expensive on most traditional valuation measures, with the S&P 500 trading at a multiple of 25.7 times earnings

Fatima Khizou 6 June, 2017 | 3:37PM

US equities have continued their upward trajectory in 2017, with the S&P 500 index registering a total return of 8.6% – the first three months of the year clocked its best quarter since the end of 2015. Technology stocks lead the market, as the sector delivered strong earnings and the highest growth rate in the S&P index.

Within this segment, Facebook, Amazon, Netflix and Google – the FANG stocks – were the strongest performers, returning an average of 15.1%. On the other side of the scale, the energy sector was the worst performing area of the market, sliding by more than 6% as investors started to question the effectiveness of the OPEC deal.

In terms of market capitalisation, small cap stocks, which were the standout in 2016, have lost momentum on the back of declining earnings and an elevated valuation. Overall, US equities look expensive on most traditional valuation measures, with the S&P 500 trading at a multiple of 25.7 times earnings. This level is well above its ten-year historical average of 16.4 times.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Fidelity America A-Dis-USD10.08 USD0.11
Franklin US Opportunities W Acc4.01 GBP-1.56

About Author

Fatima Khizou  is an Investment Research Analyst for Morningstar

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