US asset market dominated by stocks

Asset valuations across the US economy remain elevated, fueled by investor optimism as the Federal Reserve (Fed) begins its easing cycle, according to an analysis by visualcapitalist.com.

The S&P 500 stock index is up 28% year-to-date through December 6, repeatedly setting new records. Similarly, corporate bonds and residential real estate are highly valued. In several asset classes, growth rates are outpacing historical trends, reflecting heightened risk appetite.

The cited source has compiled a ranking of US assets by face value, based on Federal Reserve data, highlighting their growth rates in the second quarter of 2024. According to it, the US stock market, with a capitalization of $64.4 trillion, grew by 20.5% in value at an annualized rate, the advance being more than twice the average growth rate from 1998 to the second quarter of 2024 (8.7%). In the past two years, large technology companies have driven the advance, supported by rising earnings and a resilient US economy. In this context, the price-to-earnings (P/E) ratio of the S&P 500 has exceeded the 1998 average of 15.7, suggesting that companies remain overvalued. In the second quarter of 2024, the P/E ratio for the S&P 500 reached 27.9.

Next comes the residential real estate market, where valuations are approaching mid-2000 peaks. While nominal home price growth continues to climb, it is growing at a slower pace than the highs recorded in 2022. Overall, the US housing market, which is worth $59.8 trillion, grew by 6% annually, falling slightly below the historical average of 6.4%.

In contrast, the size of the US commercial real estate market - worth $21.8 trillion - fell by 10.8%, due to rising office vacancy rates and slow rent increases. Moreover, capitalization rates, a key measure for analyzing the income earned by commercial properties compared to their valuations, are significantly below historical averages, suggesting deteriorating fundamentals, according to the analysis.

In the aforementioned ranking, in third place, between the residential and commercial real estate markets, we find treasury securities, with a value of $26.9 trillion, up 8.6% year-on-year.

The analysis also highlights corporate bonds (Investment-grade), with a value of $7.8 trillion (+6.2% year-on-year), high-yield and unrated corporate bonds - $1.6 trillion (+6.6%), agricultural land - $3.5 trillion (-1.6%), leveraged loans - $1.4 trillion (-0.1%).