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By Guy ERTZ, Chief Investment Advisor, BNP Paribas Wealth Management
Stock markets recorded again a very strong performance in 2024. The US stock index SP500 posted a total return of 25% while European markets were closer to 10%. A large part of this performance can be justified by resilient economic growth, falling inflation and central bank rates. Traditional valuation ratios such as the price-to-earnings (PE)(1) ratio have reached high levels especially in the US but are still below the extreme levels reached in the dotcom bubble. Levels are more extreme in the US tech sector but in general the conclusion remains the same.
Using the price-to-earnings ratio to evaluate whether equities are overvalued has however several drawbacks. The...
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