European stocks are the bargain of a lifetime, US stocks still overvalued

US stocks and international stocks have historically experienced periods where one outperforms the other, which happens in cycles.

The past 10-12 years, US stocks have massively outperformed European stocks. While the S&P500 has tripled over the past 15 years, VGK, Vanguard's European stock index, has declined by 30%.

Many investors now are seeing these recent numbers, and no one wants to invest in Europe, as its seen as low growth. This has lead to the P/E and P/B ratios of VGK being approximately half of the S&P500, and a dividend yield nearly 3 times the S&P500.

In more recent terms, VGK is down 18.68% YTD, while the SP500 is down only 12.96%.

You may ask, “but why would European stocks outperform the US now when they haven't the past 15 years?”

There are a number of factors that would suggest this:

1. Most European countries such as Germany have lower Debt to GDP ratios as a result of running budget surpluses the past decade, whereas the US has been stimulating its economy with excessive deficit spending. As interest rates rise, the US will have less ability to prop up its economy with deficit spending, and will need to make some difficult decisions about government spending and taxes.

2. Inflation in the US is currently much higher than Eurozone, at 7.5% vs 5.1%. This means the US will need to be more aggressive at raising rates, which is contractionary.

3. It is increasingly looking like the US will ban Russian oil imports, whereas most of Europe will not.

All of these factors above establish an environment that sets the us up for Stagflation not much unlike the 70's oil crisis, where oil embargoes lead to rising oil prices, until the prices were eventually fixed, at which point shortages occured. During this time, international stocks substantially outperformed the US.
In addition:

1. The highest growth US companies that carried the market over the past decade are beginning to experience barriers to their growth. For example, Tesla being excluded from EV credits due to being non-union, increased government crackdowns and regulation on tech companies worldwide that threatens their revenue streams and margins, etc.

2. The rise of remote work will make the economy more globalized. It is becoming easier to hire in Europe where salaries are lower and unemployment is higher than compete for scarce talent in the US.

Investment professionals have generally suggested keeping at least 20% of your stocks in international stocks, with a common target being 40%. If you're still 100% US stocks, now is a great time to diversify.