The soft landing scenario and the end of “America takes all” – Dorval Macro Corner (Dec. 2018)


The normalization of economic and stock market optimism in America will be one of the biggest challenge of 2019. Will it land smoothly or will it go down in flame?  At 16 times expected earnings next year, the median P/E of US stocks stands almost 25% above that of non-US stocks, a record gap in recent market history.

The correction of this excessive relative valuation will pass either through other corrective episodes on Wall Street, or by a revaluation of non-US markets—or both. For a constructive scenario to occur, we will need both a decline in political risk premia, and a soft landing of the global economy. We explain why, in our view, these two conditions might well be fulfilled.

This should be moderately positive for many of the risk assets that have suffered the most in 2018, especially in Europe and in Asia. However, we believe that much slower EPS growth in the US combined with high relative equity valuation in America will create a challenging environment for global equities next year.


Download the Dorval’s Macro Corner of december 2018 in PDF


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