No matter how you slice the numbers, today’s stock market is richly valued. The price-earnings ratio of Standard & Poor’s 500-stock index is 18. That makes this the second-most-expensive stock market since World War II, surpassed only by the 1990s bull market. And it’s based on analysts’ estimates of earnings for the coming 12 months—which are typically overoptimistic.
But high stock valuations almost never kill bull markets. The 2000–02 tech wreck is the exception to the rule, but back then the P/E of the S&P 500 was approaching 30 and P/Es of some tech stocks hit triple digits. Indeed, many tech stocks had no earnings. More than a few had no revenues.
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