A First-Half Letter to Clients: Robert Shiller on the Valuation Quandary

Dan Richards Since 2008, I have posted a template for a client letter each quarter as a starting point for advisors who want to send clients an overview of the period that just ended and some thoughts looking forward.

This quarter’s letter addresses one of today’s most taxing questions for advisors and investors alike: How to deal with the quandary presented by today’s valuation levels on U.S. stocks.

To answer that question, I’ll look at what several market experts have to say. Some think stocks are too expensive, and others believe they are fairly valued.

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This letter runs longer than normal, so feel free to delete any sections that are not appropriate for you. As always, be sure to customize the letter to reflect your views.

The first half in review: Today’s big question for investors

In this review of the first half of 2015, I address one of today’s biggest questions for investors: Do U.S. stocks at today’s levels still offer value?

But first an overview of performance in the first half of 2015.

The U.S. market moves sideways – and global markets gain ground

In 2013 and 2014, the U.S. stock market substantially outperformed the rest of the world. In the first half of 2015, our market gave back some of that outperformance against Europe and emerging markets.

Annual Returns in Local
U.S. Europe Emerging
2012 16% 16% 17% 16%
2013 33% 22% 4% 26%
2014 13% 5% 6% 10%
First Half 2015 1% 8% 6% 5%
Source: MSCI, January 1 to June 30 2015, including dividends

The dollar continued to show strength in the first half of 2015. This led to lower foreign returns when translated into U.S. dollars though the rise in the dollar slowed compared to the dramatic increase in the second half of last year.