US equity valuations looking stretched

Global equities trade at 15 times 12-month forward earnings, which translates into an earnings yield of over 6%. The latter is fair by historical standards, and quite attractive relative to the 1.5% composite yield on G7 10-year government bonds. However US equity valuations have become extended, with the forward P/E ratio sniffing 17. We don't think that these richer valuations are ikely to be an impediment to higher equity prices, assuming earnings continue to trend higher, as we expect.

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