According to our U.S. Investment Strategy service, bubble concerns are premature.
Today’s valuations do not resemble the excesses that were inescapably apparent in the 1999-2000 equity bubble. Back then, large-cap tech stocks, achieved valuations that dwarfed disregarded old-economy small-caps. Even old-economy mega-caps went along for the ride, trading at levels that hobbled their performance for several years afterwards.
Equities are surely somewhat frothy and consumer tech businesses (with dubious long-run profitability outlooks) are commanding stupendous valuations, but today’s landscape does not compare to 1999. There are always story stocks that capture the market’s imagination and trade at triple-digit multiples, but the S&P 500 as a whole is trading at 15.6 times calendar year 2014 earnings – 62% of its December 31, 1999 multiple, or 60% below its peak.
The bottom line is that although vigilance is warranted (indeed, a correction may be in the offing), there is room for the bull market to run.