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In Some Ways, It's Looking Like 1999 In The Stock Market

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  • CharlesCharles
    Baloney.

    Here's best part of article:
    One important metric is the price-to-earnings ratio. In 2000, for the 10 biggest stocks in the S.&P. 500 by market cap, the P/E ratio was 62.6. Today, the comparable number is only 16.1. Back in March 2000, Cisco had the highest P/E ratio among the 10 biggest stocks, at 196.2, followed by Oracle, at 148.4. Those numbers were so high that when sentiment turned, the stocks plummeted.

    Today, only one stock in the big 10 has a P/E above 30: Google, the sole Internet company in the group. Its P/E is 33.3, double the current average for the S.&P. 500’s 10 biggest companies, but compared with the levels that prevailed in 2000, it is reasonably priced. If earnings grow rapidly, Google could conceivably be profitable for investors at its current valuation.

    The point is that even if prices are high in the overall market, they are being backed up by earnings to a much larger extent than in 2000. That’s important, because back then, when the dot-com bubble burst, the downdraft brought most companies down with it. And that’s why some people applauded when shares of King Digital, the Candy Crush maker, dropped 16 percent on their first day, while the rest of the market was largely unaffected.

    Declines like that might be good news if the result is a less bubbly market over all, said Jeffrey Kleintop, chief market strategist at LPL Financial. “It’s O.K. if the market turns a little against some of the highfliers,” he said. “We seem to be seeing investors beginning to focus more on valuation this year, and that’s good because for many companies earnings will be growing.” And if the market cycle heads in a happy direction, earnings, not manias, will be driving the story.
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