Irrational Exuberance All Over Again? 10/10
The Nasdaq Composite is back in bubble land -- up an astounding 65% in the past fifty-two weeks. That is the largest gain since the euphoric dot-com days of 1999.
There actually isn't a P/E ratio on the Nasdasq because the index's earnings are negative. And if you look at the 100 largest companies in the Nasdaq, also known as the Nasdaq 100, that group is trading at over 95 times earnings. In other words, you're paying one dollar for slightly more than a penny in earnings.
The NASDAQ topped out at 5132 in March of 2000. Even with this year's run-up, the index is still down 63% from its high -- and it's already at nosebleed valuations. Investors should start asking themselves how much more overvalued it can get .
Of course, not everybody jumped into the market at the absolute peak. Another way to see how brutal this bear market has been is to track returns over the past few years. If you invested in the NASDAQ Composite Index on October 10, 1997 through October 3rd, 2003 - your annual return would be a whopping 1.6% -- that's including dividends. You'd have to go back to 1994 to start realizing average annual stock market gains of 9-10%.
No doubt that this year's rocket ship ride in the stock market has been thrilling. But with valuations and returns so far out of whack, it's prudent to be cautious.
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The Nasdaq Composite is back in bubble land -- up an astounding 65% in the past fifty-two weeks. That is the largest gain since the euphoric dot-com days of 1999.
There actually isn't a P/E ratio on the Nasdasq because the index's earnings are negative. And if you look at the 100 largest companies in the Nasdaq, also known as the Nasdaq 100, that group is trading at over 95 times earnings. In other words, you're paying one dollar for slightly more than a penny in earnings.
The NASDAQ topped out at 5132 in March of 2000. Even with this year's run-up, the index is still down 63% from its high -- and it's already at nosebleed valuations. Investors should start asking themselves how much more overvalued it can get .
Of course, not everybody jumped into the market at the absolute peak. Another way to see how brutal this bear market has been is to track returns over the past few years. If you invested in the NASDAQ Composite Index on October 10, 1997 through October 3rd, 2003 - your annual return would be a whopping 1.6% -- that's including dividends. You'd have to go back to 1994 to start realizing average annual stock market gains of 9-10%.
No doubt that this year's rocket ship ride in the stock market has been thrilling. But with valuations and returns so far out of whack, it's prudent to be cautious.
