The terrifying proof Wall Street is in another dot-com bubble
US stocks are now pricier than they were just before the dot-com bubble burst in early 2000.
Analysts warn it could be a sign the market is entering bubble territory again.
They point to high price-to-earnings ratios — essentially the cost of a stock compared with the revenue a company generates.
In 2000, the S&P 500, America’s main benchmark, traded at 16.8 times projected earnings. Today, it costs 22.5 times expected earnings.
Put another way, 25 years ago investors were paying about $16.80 for every $1 of expected earnings. Today, that price has risen to $22.50 — a sign stocks are pricier now than just before the dot-com crash.
Wall Street watchers are also concerned about the outsized dominance of big tech firms like Meta, Alphabet, Microsoft and Nvidia.
The ten largest companies account for 39.5 percent of the S&P 500’s total value — the highest concentration ever, according to Morningstar.
That means when these firms rise, the index climbs, but any economic or political setback drags the entire benchmark down.
Some analysts have warned that the price of US stocks puts it in bubble territory
That means that individual investors whose 401(k)s or Roth IRAs are invested in the market will see their value rise and fall with the fate of these companies.
Households saw this firsthand when the announcement of President Trump’s tariffs on the rest of the world were announced in April.
Tech stocks – that are reliant on sophisticated global supply chains to build and make their products – performed the worst out of the entire market.
Their oversized weighting helped to bring the S&P 500 20 percent lower.
While stocks have since recovered from that rout, even hitting recent record highs, some Wall Street watchers are concerned about the possibility of a more sustained dip.
‘The combination of very high valuations and very crowded trades certainly raises the susceptibility of the market to an extended downturn,’ Steve Sosnick, chief strategist at Interactive Brokers, told the Wall Street Journal.
‘If everyone is effectively long the same things, where do the marginal buyers come from when they fall?’
Others say the high prices of such flashy tech companies means it is a good time to look at investing in more reasonably priced companies within the index.
Mega companies such as Microsoft run by Bill Gates (pictured) dominate the index
The .com bubble burst in 2000 led to many ruined fortunes
Investors have been on a turbulent ride in recent weeks, with stock markets hitting record highs after Federal Reserve chair Jerome Powell hinted that a cut to benchmark interest rates could come soon.
Lower rates make borrowing cheaper for businesses — and crucially for ordinary Americans, who can then spend more on goods and services.
However, just days later Wall Street panicked after the latest data showed inflation was rising.
The personal consumption expenditures (PCE) price index showed prices, excluding volatile food and energy costs, were 2.9 percent higher in July compared to the same time last year.
The Fed must ensure that it does not lower interest rates too fast, allowing inflation to get out of hand.
Investors are worried that it could therefore throw cold water Powell’s plans to cut rates.