The 10,000 mark on the Dow Jones Index is like the Year 2000. Although they are entirely artificial way stations of human history they elicit a great deal of cheering.
But while few doomsayers see much to disturb them in the turn of a new millennium you can easily find plenty of people to say that you would be mad to stick any money in US stocks with the Dow Jones in five digits.
Your correspondent has no money in the US stock market but can easily put together a contrary argument for investing there. Let's inspect the two biggest bear arguments against US stocks.
The first is that they have rarely been so expensive relative to the earnings they generate. The average price earnings ratio on forecast earnings this year hovers over the 25 times mark. Surely this is stretching things a little? It might indeed if there were such a thing as a benchmark PE ratio for US stocks, say 15 times earnings. But the fact is that we have no such bedrock of valuation.
US stocks are strong primarily because the US economy is performing strongly with little hint of inflation and this has been the state of affairs for years now.
Inevitably in such an environment yields on financial assets go down. Few people are getting 10 per cent on their money in US dollar instruments any longer, not with inflation at less than 2 per cent.
As the first chart shows, the average earnings yield of US stocks (forecast earnings as a percentage of price) has for many years moved broadly in line with the yield on the US long bond.
