• Historically, buying into the US stock market at these valuations has produced an annualised return of 0% over the subsequent 10 years
• The last couple of times the US stock market was this expensive saw double-digit % drawdowns in 2000 and 2022 – which creates opportunity to increase exposure for patient investors such as us
• US heavyweight Nvidia has a market capitalisation of £3.19 trillion eclipsing the entire value of the FTSE 100 (£2.13 trillion)

There is no debate that the US is the global leader of innovation, helped in part by the largest Venture Capital market in the world. China is not a million miles away, as DeepSeek reminded us in January, thanks to their government’s focus on Education and thus their highly skilled workforce. However, investing is not just about buying the best companies, it’s about buying good companies at the right price. The Forward Price to Earnings ratio (forward P/E) is the gold standard of valuation metrics and is the share price of a company relative to its expected earnings. It’s not a perfect measure as it can be manipulated by things like debt on a balance sheet or share buybacks, and it shouldn’t be used in isolation, but it does paint a high-level picture of a stock’s valuation. Generally speaking, the higher it is, the more expensive a company is, the lower it is, the cheaper. The below chart shows the S&P 500’s forward P/E ratio over the last 30 years. The US market has only been this expensive twice before; at the end of 2021 and back in 2000. Both times were followed by severe downturns. 2022 saw the main US stock market sell off 18.5%, although it was down 24% at a couple of points in the year. 2000 was the infamous Dot-com bubble which saw the US market down 38% from the start of 2000 through to the end of 2002.¹ The S&P 500, at a forward P/E of 22.6x, is significantly above its average of 16.5x.

Source: JPM Guide to the Markets A repeat of 2000 or 2022? Whilst valuations are unsettlingly high, we do not think the US will see the kind of drawdown that we witnessed in those previous two episodes. The US index is not filled with profitless companies with no clear path to profitability as in 2000, nor is inflation running at 9% as it was in 2022. However, we do see two clear risks to the US in resurgent inflation and/or stagnating growth. We’ve said this before but the uncertainty that Trump has created with regards to trade policy has created a wait-and-see mode for corporates and consumers. Consumer confidence has taken a hit along with consumer spending, whilst companies have lowered hiring and capex intentions. Simply put, we don’t think the risks to the US stock market marry up with the double-digit earnings growth expectations for the US in 2026 and justify the elevated valuations and all-time highs the market finds itself at. Buying companies at these valuations has historically yielded an annualised return of c. 0% over the subsequent 10 years as highlighted in the chart below.

Source: JPM Guide to the Markets The market cap problem The sheer size of companies like Nvidia also make future returns difficult. What does this mean? Nvidia has a market capitalisation of $4.29 trillion (£3.19 trillion), so think about how much money is required for this stock to go and double. The entire FTSE 100 combined is £2.13 trillion. Imagine every penny in every FTSE 100 company flow out to buy more Nvidia shares. HSBC, Barclays, Aviva, Shell, BP, easyJet, JD Sports, Tesco, Vodafone, all of them go to 0 and it wouldn’t even increase Nvidia’s share price by 100%. Rolls-Royce on the other hand, one of our top holdings has doubled over the past year and now has a market cap of £88 billion. Just 2% out of Nvidia into Rolls-Royce would cause the company to double again. Obviously, we don’t expect that to happen, but it’s an important consideration in our expected returns on different markets. Bowmore portfolios Whilst we’re not all doom and gloom on the US, we do think it is overpriced and our exposure to the region is the lowest it’s been in recent memory. Currently, 32% of our Equity exposure is to the US, with roughly a third in Europe and the UK and a third in the Rest of the World. Given the US stock market makes up 65% of global equity markets as per MSCI ACWI, it is a meaningful underweight. This underweight has added value for clients so far in 2025 with the US market up 1.7% YTD in GBP terms whilst the UK market is up 16.7% (our largest overweight relative to its 3% position in MSCI ACWI). As and when the price is right, we will likely increase our exposure to the innovative companies of the US, but at current levels, we expect to make greater returns in other equity regions as well as asset classes.

Source: LSEG DataStream, data as at 21/08/2025 The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance. Sources: ¹ FEAnalytics, August 2025