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In the bustling world of U.S. markets, valuations for companies like Costco are currently at unprecedented levels, surpassing their longer-term averages [1][2][3]. This trend is not confined to high-flying tech stocks, as Costco's valuation demonstrates [4].
The S&P 500's price-to-book ratio has reached a record high of 5.3, exceeding the peak in March 2000 during the dot-com bubble, indicating extreme market optimism in asset values relative to book equity [1]. Forward-looking price-to-earnings multiples and the Shiller cyclically-adjusted PE ratio are similarly elevated, mirroring levels seen during major historical market tops such as 1929 and 2000 [1].
Despite the high valuations, corporate profits are only advancing slowly. For instance, the S&P 500 earnings per share rose modestly, while the index level simultaneously hit record highs, pushing the PE multiple to about 30—high by historical standards [2].
Market participants remain optimistic about the potential for monetary policy easing, anticipating interest rate cuts from the Federal Reserve in 2025 and beyond. However, longer-term yields like the 10-year Treasury remain stubbornly high around 4.3%, which conflicts with the bullish outlook and contributes to risk [2].
The current rally is partly fuelled by excitement over AI-driven productivity gains and capital-expenditure growth expected from recent tax policy changes. However, some strategists warn that investors may be underestimating risks and are overly complacent [3].
From a broader valuation perspective, the market valuation percentile for U.S. equities remains near historic highs at 99%, reflecting extremely stretched valuations relative to history [5].
Costco, a membership bulk-buying warehouse business in the U.S., is currently sitting on an earnings multiple of just under 50, significantly higher than its longer-term average of about 20 [1][2][3][5]. In contrast, the five-year average of the Nasdaq earnings multiple is about 30, while the historic average is around 20 [1][2][3][5]. Despite the high valuation, Costco's earnings multiple is still below the current Nasdaq earnings multiple, which is in the mid-30s [1][2][3][5].
In conclusion, the combination of elevated expectations for technological and economic transformation, record-high valuation multiples, and the market’s anticipation of easier monetary policy underpins why U.S. stock valuations, including those of major companies like Costco, stand at extreme levels compared to historic and recent averages [1][2][3][5]. This trend suggests a potential overvaluation in the market, highlighting the need for cautious investment strategies.
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