Stocks priciest in 20 years vs. bonds, expect 'weak returns' for years

US stocks enjoyed a surprisingly buoyant first half, defying recession warnings, as investors took heart from the prospect that the Federal Reserve may be close to ending its interest-rate increases. The hype over AI also proved a strong support for the market, fueling massive gains in mega-cap tech names.

However, a growing chorus of experts are now pointing out that equity valuations are now looking increasingly stretched, raising the risk of a correction. US stocks are the most expensive in 20 years relative to bonds by one measure, according to one market strategist. The 12-month earnings yield on US stocks, minus the 10-year government bond yield, is just 1.1%, compared with 5.7% in Europe and 5.2% in the UK, Pictet Asset Management chief strategist Luca Paolini showed in a tweet, using Refinitiv data. That shows equities are overpriced and could hinder future returns.

"After recent rally, US #equities are the most expensive vs #bonds in 20 years. And the #economic outlook also suggests v weak returns in coming years," he said in the tweet.The price/earnings to growth ratio for US stocks - another key equity valuation metric that factors in longer-term future earnings -

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