From Yahoo Finance · · 2m
Stock market hits dot-com bubble valuation levels
The CAPE ratio has reached levels unseen since 1999, but history suggests patience beats panic.
In brief
The CAPE ratio has reached levels unseen since 1999, but history suggests patience beats panic. High valuations don't predict crashes, but solid businesses and long-term investing have always rewarded patient investors. Originally reported by Yahoo Finance.
Quick answers
- How expensive is expensive?
- Today's CAPE of 40.6 is second only to the December 1999 peak of 44. The long-run average is just 17.4, meaning stocks are trading at roughly 2.3 times their historical norm.
- What is the key takeaway from Stock market hits dot-com bubble valuation levels?
- High valuations don't predict crashes, but solid businesses and long-term investing have always rewarded patient investors.
Market hits rare valuation peak
The S&P 500's CAPE ratio has climbed to 40.6, matching levels last seen in December 1999 just before the dot-com crash. All three major indexes are now within a few percentage points of all-time highs.
“The stock market hasn't been this expensive since 1999”
What the CAPE ratio actually measures
The CAPE ratio divides the S&P 500's price by its 10-year average earnings, adjusted for inflation. This smooths out noise from single great or terrible years and lets us compare today's valuations fairly to the past 145 years.
How expensive is expensive?
Today's CAPE of 40.6 is second only to the December 1999 peak of 44. The long-run average is just 17.4, meaning stocks are trading at roughly 2.3 times their historical norm.
High valuations don't guarantee crashes
While the dot-com bubble did burst, the market can stay richly valued for years. An investor who sold based on CAPE ratios in 1999 would have missed years of strong gains before the eventual downturn.
“the market can stay richly valued for a very long time”
Three lessons from history
Timing the market is nearly impossible, so don't try. Solid businesses survive crashes. And in the long run, patient investing in the stock market has always paid off.
Focus on business quality, not timing
Build portfolios of real, cash-producing businesses doing well this year, not companies betting on flawless growth a decade from now. If a stock needs perfect execution and cheap financing to justify its price, that's a warning sign.
Even bad timing pays off long-term
An investor who bought the S&P 500 at its March 2000 peak would have seen their money grow nearly 5 times by September 2026. The Nasdaq, hit hardest by the dot-com crash, grew more than 5 times over the same period.
Patience beats prediction
A thousand dollar investment in the S&P 500 from March 2000 would be worth roughly 4,970 dollars today, without adding another cent. This shows that even the worst possible entry timing can produce strong returns with enough time.
The main idea
High valuations don't predict crashes, but solid businesses and long-term investing have always rewarded patient investors.
