The forward price-to-earnings ratio (forward P/E) shows how expensive a company's stock is relative to that company's projected, future earnings. Not just limited to individual stocks, the forward P/E ratio can be used to compare two stocks, two sectors, or two indices. 

The chart above compares the forward P/E ratio for U.S. equities and international equities since 1998. Historically, international equities have traded at a 10% discount to U.S. equities, as shown by the purple line. Today, however, international stocks are trading at a 23% discount to U.S. equities - the largest discount we've seen in over 20 years.

 

So what does this all mean? Well, we  believe in mean reversion, or the concept that ratios and pricing relationships that drift off course will typically return to long-term, historical norms. If we do see a reversion to the mean, it would come from international equities outperforming U.S. equities moving forward.

 

Chart Source:  JP Morgan, Has Recent Performance Affected Long-Term Prospects?

Just like people, many companies are creating resolutions for the New Year. And like people,  some companies will do a better job than others when it comes to keeping these resolutions during 2019.