The S&P 500 Is Approaching a Valuation Not Seen in 26 Years, and History Suggests a Crash Could Follow
The S&P 500 hasn't been this expensive since the dot-com internet bubble in the late 1990s.
Overview
The S&P 500 (SNPINDEX: ^GSPC) is made up of 500 companies from 11 different sectors of the U.S. economy. Its high degree of diversification is why it's one of the most widely followed stock market indexes in the world.
The S&P 500 delivered blistering returns over the last few years, fueled by the artificial intelligence (AI) boom, which created trillions of dollars in value for some of its largest members. It's now trading at the second-highest valuation in its history, based on the Shiller Cyclically Adjusted Price-to-Earnings (CAPE) ratio. The CAPE ratio is calculated based on the average earnings of the companies in the index over the last 10 years, adjusted for inflation.
Details
The S&P 500 had a CAPE ratio of 40.5 at the close of trading on Wednesday, not far from its all-time high of 44.2, which marked the peak of the dot-com internet bubble in the year 2000. The index plummeted by 49% when the dot-com bubble eventually burst, so now might be a good time for investors to tread with caution, especially because the risks to the current bull market are mounting.
Source
Originally published at www.fool.com.