Everyone knows US stocks trade at higher valuations than the rest of the world. The S&P 500 is historically expensive (Shiller PE near 40x). The usual argument is that the US deserves a "Trust Premium." We have the stable government, the reserve currency, and the predictable policy. You pay a luxury tax for US stocks because it's the safe haven.
But that trust is evaporating. We are watching the stability of the US erode in real time. With Trump's erratic behavior and policy by tweet, the "predictable" part of the US thesis is gone.
If the US acts like a volatile emerging market, it shouldn't trade at a safety premium. Why pay 20x or 25x earnings for slow growth US companies when the political risk is skyrocketing?
The real asymmetry is abroad.
\- China: You have tech monopolies with actual growth trading at 8x or 9x earnings.
\- Brazil/Europe: Massive discounts.
\- US: You pay a huge premium for "safety" while the political landscape gets more irrational by the day.
The valuation gap is closing, and it will continue to close as long as we have the DUmp in the white house.
This is why I think looking for "value" in the US right now is a mistake. People keep asking if beaten down stocks like PYPL or ADBE are value plays. They aren't. US market will probably continue to be on a relative decline (which has been for the last year) as long as the current policies persists.