US Market Not Partying Like It’s 1999
High US valuations reflect strong profitability growth, not just market optimism, making comparisons to the late 1990s misleading and future returns less predic
Much has been made of current US stock market valuations. As of November 30, the aggregate price-to-book ratio of the US market was 5.21—more than double the valuations of non-US developed and emerging market stocks. Many observers have drawn parallels to the late 1990s, when the gap between US and non-US valuations was similarly wide. Some view this as an omen for future returns—and not a good one given the US market’s infamous “lost decade” starting in 2000.
But this comparison may not be apples to apples. The weighted average profitability of the US market has surged in recent years, rising from 42% five years ago to 62% as of November 30. That’s a very different backdrop from 1999, when US market profitability declined over the subsequent five years.
Valuation ratios can be high because expected returns are low or because expected future earnings growth is high. There is no evidence that investors can reliably disentangle these effects in real time. But the strong profitability growth of recent years suggests a more nuanced story behind today’s US valuations. It is not clear that the US market requires poor future returns in order to “grow into” its current valuation levels.
Exhibit 1
Regional Equity Market Characteristics
January 1994–November 2025
Glossary
Aggregate price-to-book ratio: The ratio of a firm’s market value to its book value, where market value is computed as price multiplied by shares outstanding, and book value is the value of stockholder equity as reported on a company’s balance sheet.
Profitability: A company’s operating income before depreciation and amortization minus interest expense scaled by book equity.
Index Descriptions
Fama/French Total US Market Research Index: July 1926–present: Fama/French Total US Market Research Factor + One-Month US Treasury Bills.
Fama/French International Market Index: January 1975–present: Fama/French International Market Index. Simulated from MSCI and Bloomberg data.
Fama/French Emerging Markets Index: July 1989–present: Fama/French Emerging Markets Index. Courtesy of Fama/French from Bloomberg and IFC securities data. Companies weighted by float-adjusted market cap; rebalanced annually in June.
Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP.
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