If you enjoy finance charts as I do, I recommend following Callum Thomas of TopDownCharts either via X/Twitter or weekly e-mail newsletter. One of the recurring themes recently is the extended outperformance of US assets vs. the rest of the world. But importantly, a good portion of this outperformance is due to an increase in valuation, meaning folks are paying a higher price per dollar of earnings. That’s not the same as the price increasing simply because earnings are higher.
This chart shows how US asset overall are at higher relative valuations:
This chart shows the relative valuation trends (US over ex-US, Growth over Value, and Large-cap over Small-cap stocks):
Find more interesting charts in their recent 10 Charts to Watch in 2025 (half-time) post.
What does this all mean? Mostly it’s just an interesting part of history to me. Roughly 2/3rds of my stock holdings are US and I’m not selling any of it, so I’m not making a contrarian bet or anything. However, I do think that remaining diversified with exposure to the rest of the world is the way to go. Nearly all Target Date Funds in 401k plans are already diversified in this manner. A lot can happen in the next 30 years.
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is this good or bad?
Future expected returns are derived from starting valuations. So high valuations in the US suggest lower future returns from US stocks. The challenge for investors, is that the same thing could have been said for some time.
I find the most interesting part of the disparity in valuations, is that the outperformance of US equities over the last 15 years, has main been from the becoming more expensive. Not because of improving in fundamentals to support higher valuations. Whilst we can’t predict the future, a more balanced approach to US exposure, is likely to be prudent for many non-US investors.