The nearly relentless upward trend in the major stock indices has started to lead to recent comparisons to the tech bubble in the 1990s. If one was there, however, it would be difficult to describe the current environment as particularly reminiscent of the “irrational exuberance” that so defined the era. (It should be remembered that Chairman Greenspan first uttered the phrase in December 1996, more than three years before the eventual peak in equity prices.)
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The public at large was heavily invested and greatly interested in common stocks in those days. In a precursor to the WeWork farms of today, E*TRADE set up large trading floors for those who quit their jobs to become day traders. The average individual investor had no interest in value funds much less the bond market mutual funds attracting so much interest today. But perhaps the most compelling reason to believe we are not yet at those heady days of the late 1990s is the fact that, in general, overall valuation levels are far more reasonable today, especially given current interest rates, than they were then.
The best performing sector this year is Technology, whose earnings are expected to rise 16.2% in 2017 and 12.1% in 2018. The Tech sector itself is trading at 17.9x 2018 earnings. Put that in the context of a 10-year Treasury yield of 2.4% versus 6.0% in March 2000 and one might tempt fate and buy. The multiples and regulatory risks surrounding FANG still scare us, but there may be a sense that for the market, as Sinatra might say, the best is yet to come.
