Last Friday, the S&P 500 Index (SP: INX) reset its record for a fifth day in a row.
The index, which tracks the 500 largest listed stocks in the US, peaked at 6396 points before closing at 6389 points.
While investors appeared initially concerned by US President Trump's tariffs, these concerns have largely been shrugged off in recent months.
After bottoming in early April, the index has been unstoppable. It is up nearly 30% from its low point.
ASX investors may be looking to invest in the US again through US-focused exchange-traded funds (ETFs).
There are several options available. Two popular choices are the iShares Core S&P 500 ETF (ASX: IVV) and the VanEck Morningstar Wide Moat AUD ETF (ASX: MOAT).
Over the past 12 months, the IVV ETF has outperformed the MOAT ETF. It has risen 17%, compared to 3% for the MOAT ETF.
Including distributions and dividends, the MOAT ETF still trails the IVV ETF, returning 11.5% over the past year.
However, this is unlikely to continue going forward. Here's why.
Image source: Getty Images
Valuation matters
Over the past 100 years, the US stock market has averaged around 10% per annum.
The S&P 500 delivered a 23% return in 2024 and 24% in 2023. That's only the fourth time in history that it has delivered consecutive returns above 20%.
After this run, the S&P 500 is now trading at a historically high valuation.
It is currently sitting on an average price-to-earnings ratio (P/E) of 26 times earnings. This is far above its historical average of around 20, suggesting it is overvalued. This is likely to limit returns going forward.
Only once in history has the US stock market delivered three consecutive years of returns above 20%.
The index has also become increasingly concentrated. Around 42% of it is concentrated in just 15 stocks, with around 7% of that in Nvidia alone. This also raises concerns about a lack of diversification.
Ultimately, it's unlikely that the S&P 500 will repeat the performance of the past couple of years going forward.
When markets or individual companies are trading at high valuations, they are often considered to be "priced to perfection". This means that any piece of unfavourable macroeconomic or company news can trigger a sell-off.
This week, the US Federal Reserve will meet to deliver its next interest rate decision. While markets expect the Fed to keep rates on hold, any post-decision remarks by Federal Reserve Chairman Jerome Powell could move markets. Chairman Powell has faced political pressure to lower rates, which escalated last week when US President Donald Trump challenged Powell on camera.
Another key piece of macroeconomic data that could move markets is the second-quarter gross domestic product report, which is also set to be released this week.
Why MOAT ETF is an attractive alternative
While the US sharemarket is expensive on average, individual company valuations vary considerably.
The VanEck Morningstar Wide Moat AUD ETF could be a smart pick today for investors looking for US exposure.
The MOAT ETF selects its holdings based on certain criteria, one of which is valuation. The fund includes only companies trading at attractive valuations.
The MOAT ETF is also reasonably well diversified. It contains 54 holdings, with the largest comprising just 3% of the fund.
A well-diversified and attractively valued portfolio, such as the MOAT ETF, is likely to outperform the broader index going forward.
