'The psychology is even more dangerous than 20 years ago': A Wall Street investment chief says stock valuations are giving him dot-com bubble flashbacks — and warns of a major meltdown in the next year
Cast your mind back to the days in March when stocks were in freefall and everything around you, from the NBA to weekend plans, was suddenly postponed indefinitely.
His flashbacks are not merely occuring because technology stocks are all the rage again — although that's an important factor. He is also flagging that investors have once again imbibed a narrative of unrelenting gains. This narrative implies that confidence in supportive policies and so-called free money now trump concerns about excessive valuations.
Using the stock market as a forward-looking indicator of the economy, Ramsey noted that investors are usually comfortable with calling the bottom in stocks once it's clear that an expansion is in place. They are right for the most part, and the bull markets continue until the next recession comes around.
To wit, the S&P 500 normalized price-to-earnings ratio briefly fell below its September 2001 low during this year's crash. But thehas swiftly returned it to 29.1 times, a level higher than 98% of all the historic data.
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