US stocks may have tumbled in 2022, but many indices outside the US have suffered even greater declines, widening a valuation gap that was already at eye-popping levels.

After 15 years of outperformance, US valuations are now nearly twice that of the rest of the world, according to Callum Thomas of Topdown Charts, who compared the cyclically adjusted price-earnings (Cape) ratio of the US to 46 other countries.

Some might be tempted to pile into non-US markets, but there is a caveat. Relative to the past decade, says Thomas, both the US and the non-US world are still not cheap. There is, he says, “a long way to go” if valuations were to revisit lows seen during the global pandemic or the 2008-09 financial crisis, or even the lows seen during the 2015-2016 market correction. This year′s declines have merely brought valuations back to pre-pandemic levels.

Unfortunately, the fundamental backdrop today – high inflation, rising rates, major geopolitical strains – appears worse than in pre-pandemic times. Poor fundamentals can be overcome if the valuation cushion is big enough, says Thomas, but that doesn’t appear to be the case right now.