Asset Allocation Strategy
19 February 2024
US Equities: Prospects After the Surge
Tech Stocks Continue to Drive US Advance

US stocks have made a strong start to 2024 (+5%) after a powerful recovery in 2023 (+24%). 

The strong advance over the past year has seen the US market P/E lift to 20.3x (1-year forward earnings) compared to 16.7x at the start of 2023.

Figure 1: US equities continue to push to new highs

The current P/E ratio is below the 21.7x we saw around the late 2021 market peak, but is 14% above the 10-year and 6% above the 5-year average.

Figure 2: US equities are back trading well above their historical average multiple

Technology sector leadership has been a feature of the US market's advance, with mega cap technology stocks surging over the past year. The tech sector is up 53% over the past 12 months, versus 21% for the overall market.

Figure 3: Tech and tech-related sectors have led the US advance (12m return)

Much has been made of the performance of the so-called Magnificent Seven tech related stocks led by spectacular performance from AI infrastructure player Nvidia (+223%). Shorter term we note more mixed performance from the Magnificent Seven. Tesla is the bottom performer within the largest 20 US stocks year to date, while Apple is also down marginally. Nvidia and Meta have once again been very strong this year, while Amazon and Microsoft have also outperformed the S&P 500 benchmark with double digit returns (see figure 4). 

There are a number of notable strong performers evident outside of tech, albeit tech continues to lead the US advance. Best performing non-tech mega caps this year are Elli Lilly, Costco and Mastercard.

Figure 4: Largest US stocks performance (ranked on market cap size)
12 months % Year to date %
Microsoft Corp 59.5% 11.8%
Apple Inc 25.2% -1.9%
Alphabet Inc 56.8% 6.7% Inc 77.6% 14.8%
NVIDIA Corp 222.9% 45.7%
Meta Platforms Inc 163.1% 32.2%
Berkshire Hathaway 29.7% 11.7%
Eli Lilly and Co 116.6% 27.0%
Tesla Inc -6.6% -22.1%
Broadcom Inc 114.1% 15.0%
Visa Inc 20.5% 6.2%
JPMorgan Chase & Co 24.6% 2.9%
UnitedHealth Group 6.7% -1.6%
Walmart Inc 19.6% 7.4%
Mastercard Inc 23.6% 7.4%
Exxon Mobil Corp -11.0% 1.8%
Johnson & Johnson -2.9% 0.0%
Procter & Gamble Co 14.9% 7.4%
Home Depot Inc 15.1% 4.8%
Costco Wholesale Corp 47.8% 9.6%

Source: Refinitiv, Wilsons Advisory.

From a longer-term perspective the tech sector explains a significant portion of the US market’s PE expansion over the last 5 and 10 years though some degree of P/E expansion has occurred across most sectors. This is despite the current 10-year bond yield (4.2%) sitting well above the 10-year average level (2.9%).

Figure 5: The US tech sector has led the US market re-rate (current P/E vs 10-year average)

While valuation expansion has explained part of the US market’s outperformance versus the “rest of world” earnings growth has also been vastly superior (also led by the US tech sector) and been the dominant driver of the US market’s outperformance over the past 10 years.

The US market has grown earnings at 9.3% p.a. over the last 10 years compared to 4.7% for rest of world. So, while valuations are less demanding outside of tech, earnings growth has been relatively subdued in comparison to the US.

Figure 6: US earnings growth has outstripped the rest of world

An acceleration in the global economy may well be needed to spark a genuine rotation back to the rest of the world, although we note Japan is quietly having a performance renaissance as investors cheer a shift from deflation to moderate inflation alongside a greater corporate focus on shareholder value creation.

Inflation and Interest Rates: Key Risks for Runaway US Stock Market?

The significant US equity correction in 2022 was driven by a sharp adjustment in interest rates as US and global inflation surprised significantly to the upside. 

Figure 7: A sharp rise in bond yields drove the big sell-off in 2022 and the sell-off in the third quarter of last year

While a renewed inflation shock is not our central case, the US CPI did surprise to the upside last week. As we also discussed last week, US economic growth does not appear to be undergoing the economic slowdown the consensus has been anticipating. 

This does suggest some risk that inflation either gets stuck at current levels, or indeed reaccelerates, rather than the Goldilocks scenario of easing back to the Fed’s 2% target. 

While we can’t completely discount a sustained negative surprise on US inflation, the downswing appears reasonably well entrenched in our view, despite the potential for further bumps along the way.

If inflation did ultimately surprise to the upside this year it would likely lead to a significant uplift in interest rates and a valuation correction in US equities. So, inflation prints over the next few months will be closely watched following January’s upside surprise.

Balanced Outlook for US Equities for the Rest of 2024

In summary after a very strong 2023 and a fast start to 2024, we see broadly neutral prospects for US stocks for the balance of the year. 

There is some risk of at least a moderate valuation correction in the near term. This could result from some further stickiness in near term inflation numbers, however we still believe that US inflation will decelerate further as the year progresses.

Alongside the positive side of the ledger the recent US reporting season reinforced that the earnings environment looks promising led by the US tech sector. 

Valuations do look notionally more attractive outside of the US, but earnings momentum is less appealing. An improvement in growth momentum in the global economy is needed for broader performance from the world excl. the US. Longer term it is still hard to ignore superior growth prospects of the star-studded US equity market.

Figure 8: S&P 500 sectors ranked on CY23 earnings growth
EPS growth CY23 EPS growth CY24
Consumer Discretionary 46% 11%
Communication Serv. 24% 17%
Industrials 20% 9%
Utilities 8% 8%
Information Technology 6% 16%
Financials 4% 11%
Real Estate 4% 3%
Consumer staples 2% 5%
S&P500 1% 11%
Healthcare -21% 16%
Materials -23% 0%
Energy -29% 6%
  • Share This Article

Written by

David Cassidy, Head of Investment Strategy

David is one of Australia’s leading investment strategists.

Disclaimer and Disclosures

About Wilsons: Wilsons is a financial advisory firm focused on delivering strategic and investment advice for people with ambition – whether they be a private investor, corporate, fund manager or global institution. Its client-first, whole of firm approach allows Wilsons to partner with clients for the long-term and provide the wide range of financial and advisory services they may require throughout their financial future. Wilsons is staff-owned and has offices across Australia.

Disclaimer: This communication has been prepared by Wilsons Advisory and Stockbroking Limited (ACN 010 529 665; AFSL 238375) and/or Wilsons Corporate Finance Limited (ACN 057 547 323; AFSL 238383) (collectively “Wilsons”). It is being supplied to you solely for your information and no action should be taken on the basis of or in reliance on this communication. To the extent that any information prepared by Wilsons contains a financial product advice, it is general advice only and has been prepared by Wilsons without reference to your objectives, financial situation or needs. You should consider the appropriateness of the advice in light of your own objectives, financial situation and needs before following or relying on the advice. You should also obtain a copy of, and consider, any relevant disclosure document before making any decision to acquire or dispose of a financial product. Wilsons’ Financial Services Guide is available at

All investments carry risk. Different investment strategies can carry different levels of risk, depending on the assets that make up that strategy. The value of investments and the level of returns will vary. Future returns may differ from past returns and past performance is not a reliable guide to future performance. On that basis, any advice should not be relied on to make any investment decisions without first consulting with your financial adviser. If you do not currently have an adviser, please contact us and we would be happy to connect you with a Wilsons representative.

To the extent that any specific documents or products are referred to, please also ensure that you obtain the relevant disclosure documents such as Product Disclosure Statement(s), Prospectus(es) and Investment Program(s) before considering any related investments.

Wilsons and their associates may have received and may continue to receive fees from any company or companies referred to in this communication (the “Companies”) in relation to corporate advisory, underwriting or other professional investment services. Please see relevant Wilsons’ disclosures at

Related articles