And US earnings remain fairly high, in spite of the recent fall. From our estimates, they appear to be, in aggregate, around where they were in 2018.
Based on valuations, fundamentals and history, there is an argument for a doubling up of optimism to warrant investing in the US equity index at these levels. First is the view it warrants a very high PE, long term, well above historic averages.
And second, if PEs drop, earnings need to grow well above long-term averages to simply maintain a zero return.
Unless, of course, the ratio stays well above 30 over the long term, then earnings growth can be in line with history and investors will do fairly well. History suggests the odds of that are low.
Rory Maguire is managing director of Fundhouse