This is NOT like the dot-com bubble… it’s much worse, according to this chart
March 2nd, 2017 by Jason B. Vanclef
Published: Mar 2, 2017 3:28 p.m. ET
This market climate is nothing like we saw during the dot-com hey day. By many measures, it’s actually worse, according to numbers crunched this week by 720 Global’s Michael Lebowitz.
“Even though current valuation measures are not as extreme as in 1999, today’s economic underpinnings are not as robust as they were then,” he wrote. “Such perspective allows for a unique quantification, a comparison of valuations and economic activity, to show that today’s P/E ratio might be more overvalued than those observed in 1999.”
In this chart, Lebowitz stacks up the metrics from the years running up to the dot-com explosion versus what we’ve seen since 2012:
Lebowitz acknowledged, of course, that equity valuations back in 1999 were, as proven after the fact, “grossly elevated.” But when put up against a backdrop of economic factors, he says those numbers appear to be relatively tame compared with today.
“Some will likely argue with this analysis and claim that Donald Trump’s pro-growth agenda will invigorate the outlook for the economy and corporate earnings,” he wrote. “While that is a possibility, that argument is highly speculative as such policies face numerous headwinds along the path to implementation. Economic, demographic and productivity trends all portend stagnation.”
His bottom line: “There is little justification for paying such a historically steep premium for what could likely be feeble earnings growth for years to come.”