Stuart Kirk Published October 2 2026 Jump to comments section Print this page Unlock the Editor’s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. A year ago, I wrote that greed would be my fourth-quarter investment strategy. We were in a bubble, I reckoned, but it had a way to go.
Besides, US stock returns had been positive 80 per cent of the time in the last three months of the year since my mum was at kindergarten. So much for that. By the end of October I had sold every equity fund in my portfolio and ran a 100 per cent cash position for the next five months.
Does being greedy make sense again now? Will I ignore my advice regardless? Part of the reason I threw my shares out of the pram was how well they had performed in 2025 up to that point. Everything felt too perfect. I was up 17 per cent since January, comfortably ahead of the S&P 500 – even though I had no US stocks.
This year, my portfolio has risen in value by 11 per cent, in line with the S&P 500 in dollars, but four percentage points behind in pounds. I will take that every time, of course. But it doesn’t seem as frothy and overheated as this time last year.
Yes, there’s been Space X, the frothiest and most overheated company listing in the history of finance. And the size and growth in borrowing to fund the artificial intelligence boom is off the charts — $340bn by the hyperscalers alone next year, according to Goldman Sachs. So what do I mean when I say that equities feel less exuberant to me than 12 months ago? And does that necessarily make them more attractive? As an investor you want the va-va-voom.
You just don’t want to overpay. For earnings, that is. And one of the most extraordinary developments since my column a year ago is how much more profit I receive for my money.
In every one of the markets I’m invested in, forward price-to-earnings ratios are lower today. I read once about a hedge fund manager who used to scream at analysts: “Don’t bring me stocks on eight times price-to-earnings ratios and tell me they’re cheap. Show me something that you think is undervalued on 50 times!” Like Nvidia, I suppose.
In 2023, its forward price-to-earnings ratio was exactly that (its trailing multiple was 180 times). I would have told my boss it was ridiculously expensive and only a moron would buy it. It turns out it was cheap — as defined by the fact that Nvidia’s share price subsequently sextupled.
And indeed its earnings grew by even more, such that the consensus forward price-to-earnings has dropped to just 19 times, according to Capital IQ data. It grew into its valuation, as the pros say — and then some in Nvidia’s case. A milder version of this is what has been going on in equity markets more broadly.
In the US, Japan and Latin America, forecast earnings are a third higher than a year ago. For the UK, it’s 27 per cent. Lat Am earnings will nearly double.
Thus, if I had known last October that US profits would be what they are forecast to be this year, the 25 times forward price-to-earnings back then was actually closer to 18 times. Japan’s was 13 rather than 17. The FTSE 100’s was more like 11 than 14.5 times.
The surge in earnings didn’t come until long after I sold out of equities. It was only after Iran kicked off that profits began accelerating almost everywhere. But you need to look at a long-run chart to appreciate just how unusual this is — especially in the US.
So much so that not only are forward price/earnings ratios lower today than a year ago for every stock market I own but they are all — save the US — beneath the levels they dropped to when I bought back into equities as missiles were flying over the Gulf. Even the S&P 500’s ratio is only a smidgen higher — 21.3 times today compared with 20 in late March. And yet the index is up by a fifth.
Asia ex-Japan has performed even better, while its price/earnings ratio fell by as much as the US’s rose. It’s a similar story, to a lesser degree, for the...
Source: Financial Times Markets · Summarized by HeadlinesBriefing