The Stock Market's CAPE Ratio Hits Levels Last Seen During the Dot-Com Bubble
For the first time in over a century, the cyclically adjusted price-to-earnings (CAPE) ratio has closed above 40 for three consecutive months. This level was previously seen during the dot-com bubble of 1999–2000, which preceded a nearly 50% drop in the S&P 500 from March 2000 to October 2002. The CAPE ratio smooths out market valuations by using inflation-adjusted earnings over the past decade. The current high reading suggests that stock prices may be significantly ahead of fundamentals, echoing speculative behavior seen during the dot-com era when investors poured money into unprofitable tech companies based on hype rather than financial performance. However, some argue this time is different because today’s market is driven by large, profitable technology firms like Microsoft and Nvidia. Yet concerns remain about AI-driven growth models that are still losing money despite rapid revenue expansion.
Tickers: $NVDA
Topics: CAPE ratio dot-com bubble comparison stock market valuation