US shares ‘dangerously dear’
America’s Dow Jones index broke through 20,000 for the first time in history on Wednesday, helping to take American markets to their most expensive level in 15 years. The index, which consists of just 30 of the best-known American companies, has been buoyed by the expectation that Donald Trump’s new administration will lower corporate taxes and increase spending – and so boost the economy.
Based on the cyclically adjusted price to earnings ratio, or “Cape”, the index is now the most expensive it has been since 2002.
“Cape” compares companies’ average annual earnings over 10 years (adjusted for inflation) with their share price, and can be calculated for an entire index.
American markets are now at a Cape value of 28.5. By comparison, the FTSE 100 is currently at 15.5.
Laith Khalaf, a senior analyst at the investment shop Hargreaves Lansdown, said that despite the record highs for markets, valuations were not at the extremes experienced during the tech