This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Pricey U.S. Stocks Accelerate Move to Europe, Japan

NEW YORK (TheStreet) - U.S. stocks are enjoying their best year since 1995, and whether or not the good times continue into 2014, one thing is clear: domestic equities have become expensive.

The S&P 500 has gained an eye-popping 23.3% in 2013, its best run to start a year since 1997 when the index advanced 26.7%. Those were the halcyon days of the Internet Boom, and we all know how that ended.

The U.S. benchmark currently trades at 15.9 times earnings, its highest level since May 2010, and a point at which BlackRock's (BLK - Get Report) Russ Koesterich, the firm's global chief investment strategist, marks the group as fully valued.

"The majority of this year's U.S. market gains have come through higher multiples, not a boom in corporate earnings," Koesterich, who is based in New York, said in a phone interview. "Their premium to other markets is starting to look excessive."

Must Read: Taking Profits as Pricey Stocks Rely on Fed Juice

Koesterich, who helps oversee more than $4 trillion, urges investors to consider Japan and Europe for more compelling opportunities. U.S. equities, by comparison, have been boosted by the Federal Reserve's stimulus program, producing valuations that are likely to remain high even if the Fed curbs its equity-boosting bond-buying.

More broadly, the U.S. economy is growing at about 2% per year -- a rate that seems to make high valuations hard to justify. Meanwhile, the green-shoots of recovery in Europe and Japan's emergence from decades of deflation, are generating stocks that are undervalued with higher growth potential.

"In Europe, the key is to look for larger companies that have very export-driven sales where valuations have been punished just by being based in Spain, Italy or Germany," he said. "In the UK, the economic recovery is also stronger than people expected."

Koesterich says U.S. stocks trade at about 2.5 times book value - or 2.5 times more than the value of their assets - compared to a ratio of 1.6 times for other developed markets and 1.5 times for emerging markets. The BlackRock strategist says U.S. stocks don't justify this premium. He says U.S. energy and technology stocks still appear reasonably priced but warns domestic shares in general will soon tip into overvalued territory unless earnings growth strengthens.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BLK $355.69 -1.61%
AAPL $95.18 1.64%
FB $117.43 -0.96%
GOOG $692.36 -0.84%
TSLA $232.32 -3.92%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs