Is this a new bull, or signs of a bubble? Some investors may be asking, as the S&P 500 crosses 5,000.
And why the comparison to 1999?
This is because of the strange parallels to the Dotcom Bubble in 2000. We are in a market where the vast majority of returns in the S&P 500 are due to the hype in AI tech megastocks in the Magnificent 7 - namely, Nvidia, Microsoft, Meta, Alphabet and Amazon.
However, Jonathan Levin, CFA of Bloomberg is not convinced this is a bubble. Let’s look at his reasons.
Reason #1: PE Ratios are not in bubble territory
The S&P 500 forward PE ratio is at 20.5x. While this is high, it is nowhere near the S&P 500 ratio of 25.2x in 1999.
Reason #2: Sell-side analysts project about 8% more upside
Sell-side analysts have price targets for individual companies they research — from the bottom-up. In aggregate, this comes to a 5,420 price target for the S&P 500 over the next 12 months. This is an 8% upside, in total.
That return also assumes that Nvidia share price will fall about 3% over the next 12 months. This of course, could be revised sharply after Nvidia reports results.
Portfolio Implications
There are risks to of course, (1) Riding a bubble; vs. (2) Skipping out on a ‘bubble’ that is actually the real deal, as Mr. Levin proposes.
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