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S&P 500 dot com bubble parallels leave institutional investors wary

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The S&P 500 index ended August at an all-time high, making it seven consecutive months of gains. This is the longest winning streak for the S&P 500 index since January 2018.

A streak of seven consecutive months or more of gains by the S&P 500 has occurred just 14 times in the last 60 years.

Meanwhile, at 21x forward earnings, the S&P 500 continues to flirt with the record average valuations recorded during the dot com bubble.  

The following chart was sent in a note to clients by London-based investment firm, Antipodes. It shows the average forward PE multiple of S&P 500 constituents currently sits around 21x – just short of the all-time high of the dot com bubble.

S&P 500 index

Antipodes portfolio manager, Alison Savas, said the the average valuation hides the fact that multiple dispersion remains stubbornly high (also just shy of dot.com bubble extremes).

“There’s very expensive stocks and very cheap stocks. In fact, value’s discount to growth has rarely been this attractive. This tells us that opportunities exist in relative valuations and now is a great time to be an active value manager,” said Ms Savas.

“It’s no secret tech stocks have led the charge over the last 6 months as investors once again seek out secular growth and businesses believed to be disruptive, because it’s believed they can grow independently of the economic cycle. 

“But disruption is not limited to the tech sector. It can be found through the market spectrum and given multiple dispersion remains high, it can be found at very attractive valuations in less obvious places.”

EM on the radar

A recent Asia Markets article exclusively revealed data which shows an increasing number of institutional investors are turning to emerging markets stocks because of concerns about the lofty valuations of US stocks and rising US Treasury yields.

The first week of September saw the largest foreign inflows into emerging markets stocks since the US election.

Do you think US stocks are overvalued? Leave a comment below.

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