The Stock Market Is Doing Something It Has Only Done 1 Time Since 2000 -- Should You Be Worried?
Key Points
The S&P 500 is historically expensive.
The last time the S&P 500 was this expensive was during the dot-com bubble.
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The Shiller price-to-earnings (P/E) ratio, or CAPE ratio, is a measure of how expensive the S&P 500 (SNPINDEX: ^GSPC) is. At the time of this writing, the Shiller P/E ratio is just over 40 -- a mark it has hit only once before -- in the thick of the dot-com bubble.
Unfortunately, we know how the dot-com bubble played out, with the S&P 500 losing almost half its value. Given what happened last time we saw the S&P 500 this expensive, should investors be worried? The short answer is no.
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When I say you shouldn't be worried, it's not because the S&P 500 is immune from a correction, pullback, or bear market. Each of those has a very real chance of happening at virtually any time.
That said, I don't think investors should be worried because, even after those events, the S&P 500 has shown its resilience and bounced back each time. Since the bottom of the dot-com bubble, it's up over 725%. Since the COVID-19 pandemic crash, it's up around 200%.
Admittedly, just because it has happened before doesn't mean it will happen again. Nothing is guaranteed in the stock market. However, the S&P 500 has a track record that warrants giving it the benefit of the doubt. This is especially true if time is on your side.
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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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