Growth Concerns Put Pressure on Richly Priced US Stocks
by Sequoia Financial Group
by Sequoia Financial Group
The US stock market has been under pressure as recent growth concerns have raised doubts about historically high valuations. The S&P 500 closed last week down 1%, bringing its year-to-date (YTD) return to 1.4%. The Index was up almost 5% just 10 days ago.1
The S&P 500 has been trading at a forward P/E ratio of 21-22x compared to an average of 18.5x over the past 10 years.2 High valuations reflect higher earnings growth expectations. But when uncertainty arises over such expectations, stock market returns can become volatile.
Consumer sentiment has declined over the past few weeks, and certain corporate management commentary has sounded a cautious tone. On Walmart’s recent earnings call, CEO John David Rainey warned the company would not be immune from tariffs on Mexican and Canadian imports.3 Guidance on 2025 earnings was 9% below expectations.2 On Friday, The Atlanta Fed’s GDPNow indicator forecasted an economic contraction of 1.5% for Q1 2025.4
Bonds performed well in response to growth concerns: the US 10-year Treasury yield declined from 4.42% to 4.24% as investors bought more Treasuries.5 Bond prices rise when yields decline. The Bloomberg US Aggregate Bond Index returned 1.3% for the week, bringing its YTD return to 2.7%.1
The second most valuable US company, Nvidia (NVDA), reported strong earnings and forward guidance on Wednesday.2 Despite this, NVDA declined 7.1% for the week.1 Many investors fear the US government could further restrict the company’s exports to China over national security concerns. Nvidia’s sales to China account for 15% of its total revenue.6
While the US grapples with growth concerns, international markets have rallied. The iShares MSCI ACWI ex US ETF (ACWX), primarily composed of stocks domiciled in developed international countries such as Germany, is up 6% YTD. The primary German stock market index, the DAX, is up 13.3% YTD.1 The country elected a new chancellor who is expected to cut red tape and relax the country’s “debt brake” to allow for fiscal stimulus.7
The S&P 500 has outperformed the ACWX in eight of the last 10 years, but the tide could turn on “US exceptionalism.”1 The ACWX trades at 13.9x forward earnings, allowing for more potential upside compared to US markets.2 But investors might not have to look overseas for better return prospects: Value-style investing has mostly been out of favor over the past 10 years, but is so far outperforming Growth by 6.5% in 2025.1
1Morningstar Direct
2FactSet
3https://www.cnbc.com/2025/02/20/walmart-wmt-q4-2025-earnings.html
4https://www.cnbc.com/2025/02/27/stock-market-today-live-updates.html
5https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2025
6https://www.economist.com/business/2025/02/25/nvidia-is-fighting-both-trump-and-china
7https://www.economist.com/europe/2025/02/10/germanys-business-model-is-gone-warns-friedrich-merz
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Growth Concerns Put Pressure on Richly Priced US Stocks