Stock Market Pattern Echoes the Dot-Com Era and History Points to 1 Move Investors Should Make Now
The S&P 500 is trading at valuation levels last seen before the dot-com bubble, with a disconnect between new highs and new lows.
Overview
The internet was the big story at the end of the last century, with the web expected to change the world. It did change the world, but not before Wall Street's enthusiasm created a massive bubble that, eventually, burst in dramatic fashion. Given the massive excitement around artificial intelligence (AI), investors shouldn't ignore the similarities between today and what has now been dubbed the dot-com bubble. Here's why and one move you should make right now.
When the dot-com bubble burst, the S&P 500 Shiller CAPE Ratio had hit an all-time high of roughly 44x. That ratio is back above 40x, hitting its highest level since the dot-com bubble period. The S&P 500 Shiller CAPE Ratio is basically a P/E for the S&P 500 that smooths earnings, adjusted for inflation, over a 10-year period. Since earnings can be volatile over short-term periods, this index can provide a more accurate view of valuation.
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Originally published at www.fool.com.