Soaring US stocks echo dotcom rally but with lower valuations
While gains in US evoke comparisons with dotcom era, stock prices seen as reasonable
Every day, the American bull market looks more and more like the dotcom bubble of the late 1990s. Except when it comes to valuations.
The Standard & Poor's 500 Index briefly jumped above 2,000 points for the first time on Monday and the Nasdaq Composite Index is within 10 per cent of a record reached in March 2000. Investors have seen annualised returns of 24.5 per cent since March 2009, compared with 27.1 per cent over an equal amount of days ending on March 24, 2000, the peak of the internet rally, data showed.
Stocks are catching up to the pace of more than a decade ago amid record profits, near-zero interest rates and economic growth that is expected to accelerate. While the dotcom bubble peaked with the S&P 500 trading at close to 30 times annual earnings of its companies, the valuation is about 19 times now, data from S&P Dow Jones Indices show.
"We're on the expensive side of fair value, but certainly not in the bubble place they were in the 2000 period or in a place that concerns us," said Ed Hyland, global investment specialist at JP Morgan Chase Private Bank. "There is potential for the market to go higher."
Five years of gains have driven the S&P 500 up 195 per cent, compared with a 236 per cent advance over the comparable period that ended in March 2000. With the US Federal Reserve calling valuations in smaller biotechnology and social-media companies "stretched" and mega deals resurfacing, concern that prices are too high is growing.
