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I have written on multiple occasions about the US stock market overvaluation. Stock prices are high, too high, according to my analysis. The fact that the US stock market is overvalued is not a thing of the recent past. The US stock market has been overvalued for years. I had some fierce debates with other analysts who tried to prove me wrong. One of their often-repeated claims is that the US stock market is made up of a large share of technology companies, which tend to grow at a faster rate than companies from other sectors. In the past, the major US stock market indices largely consisted of companies from other sectors, such as utilities. Therefore, a higher price/earnings (P/E) ratio for the US stock market in recent times (compared to in the past) is justified. And moreover, the higher P/E ratio for the US stock market relative to other foreign stock markets is justified as well. Is there any truth to these claims?

The US Stock Market Is Overvalued

Source: Multpl.com, data courtesy of Robert Shiller

P/E Ratio of the US Stock Market Corrected for Sector Composition

Source: GMO

P/E Ratio by Individual Sector

Source: GMO

P/E Ratio of the US Stock Market Compared to Other Western Stock Markets on Sector Level

Source: GMO

Conclusion

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