US assets have delivered in past decades, but big doubts over the future 

Chad Padowitz

The prices of US equities, property and high-yield bonds have risen significantly over the past 30 years but moving ahead, the uncertainty weighing on financial markets stemming from Donald Trump’s tariffs and the significant trend towards deglobalisation could weigh on the earnings of US companies, according to Chad Padowitz, Co-CIO at Talaria Capital. 

“Over the past 30 years, equities have gotten more expensive as measured by the price-earnings ratio. The same thing has happened to real estate and high-yield bonds; they have all gotten more expensive,” Mr Padowitz said, pointing to the chart below. 
 

“That has meant that savers and investors have enjoyed strong tailwinds over this period, despite three drawdowns in the US equity market, as long as investors held on, they would have been better off.” 

However, US equities may not enjoy such strong gains moving forward. US equities have P-E multiples which are high by historic standards, corporate profits as a percentage of GDP sit at all-time highs and share market concentration is unprecedented. On top of that, US government debt has risen to record levels, which means bonds are likely to provide limited long-term real returns, at best, according to Padowitz.  

“As we move forward, there is a headwind to rising asset prices, or at least the tailwind which has existed may have gone, so the conditions which allowed rising prices to happen may have changed,” Mr Padowitz said. 

“With Trumps tariffs and deglobalisation, we could move into a period where there is a real headwind to asset prices rising in the years ahead, and the tailwind to asset valuations rising could disappear entirely, if we see an acceleration in the deglobalisation trend. That could fundamentally change the return outlook.”