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Towards the end of 2021, I repeatedly warned readers that financial markets appeared to me to be an ‘everything bubble’. In particular, US stocks seemed widely overpriced. Back then, I worried that the S&P 500 index might fall 20% or more in 2022, entering a so-called bear market.
Crash positions
My prediction proved accurate, with the S&P 500 collapsing by 25.4% from its January 2022 high to the October 2022 low. Fortunately, my family portfolio avoided the worst of this slump, because we had built a cash pile to invest post-collapse. Also, we had partly switched from buying American stocks in favour of far cheaper FTSE 100 shares.
Once again, I think the chances of another stock-market crash have grown substantially lately. By most measures, US stocks are amongst the most expensive they’ve been in 150 years. Then again, Footsie shares look pretty cheap to me, both in historical and geographical terms.
US or UK?
Looking at current fundamentals, the S&P 500 trades on 25.7 times trailing earnings, delivering an earnings yield below 3.9%. It offers a dividend yield just over 1.1% a year, covered 3.5 times by historic earnings. While this index isn’t as insanely overpriced as at the peak of the dotcom bubble in March 2000, it’s a long, long way from being cheap.
In contrast, the FTSE 100 trades on around 15 times historic earnings, producing an earnings yield of 6.7%. It also offers a dividend yield of 3.1% a year, covered almost 2.2 times by trailing earnings. Though this isn’t dirt-cheap, it’s by no means expensive when set against previous market peaks.
Therefore, given the Footsie is far cheaper than its American cousin, I should pour my spare cash into UK stocks, agreed? Alas, the answer isn’t so crystal clear, because US corporations tend to grow their earnings much faster than British businesses. In addition, many of the world’s most powerful mega-cap tech and growth stocks are US-listed.
A FTSE faller
Another issue is that the US stock market accounts for almost two-thirds of the total valuation of world stocks. This leaves most global tracker funds heavily weighted to American corporations. Therefore, to reduce our exposure to the US, my wife and I have focused on buying undervalued and unloved UK shares.
For example, we bought into FTSE 100 firm Bunzl (LSE: BNZL) last year. We paid £22.92 a share for our stake. This came after the shares slumped when this workplace-supplies and distribution firm released results on 16 April 2025.
As I write, Bunzl stock trades at 2,050p, valuing the group at £6.6bn. At their 52-week high, the shares peaked at 3,488p on 13 February 2025. They have plunged by 40.2% over the past 12 months and have slid by 12.5% over five years. However, these figures exclude dividends — and Bunzl’s falling share price has pushed up the dividend yield to a market-beating 3.6% a year.
Since this stock is now even cheaper than when we bought it 10 months ago, it has gone back on my buy watchlist. That said, I shall scour the group’s next financial update for signs of weakness. If sales, margins or cash flow weaken further, then I won’t hesitate to dump our stake to invest elsewhere!
