The trailing P/E ratio of the S&P-500 is about 39. Historically, the mean, or average is 16. By that measure, yes, the markets are in a bubble. Unquestionably.
However, “the markets can remain irrational longer than you can stay solvent,” so betting against the bubble continuing would not be a very good idea.
Is it “different this time?” It never is. Are we near a top? We could be years away from the bubble bursting. Nobody knows because nobody can predict the future.
I can say, however, that market tops do not occur in a vacuum. Usually there are indications that a top is approaching, either an economic slowdown or even an imminent collapse (like in 2007). The economy right now is quite good. Sure, unemployment is up for service workers, but a covid vaccine is being distributed and administered, and things will get better. The government is set to approve a massive economic relief package and the fed is holding the line on the fed funds rate.
True, the yield on the 10-year treasury has crept up, but it is only now falling back into the range and pattern it had before the beginning of the covid pandemic.
Is the market ever safe?
Is there ever a time when worries about bubbles and tops aren’t circulating?
As a long-time watcher, there are always concerns, hence the phrase “the market climbs a wall of worry.”
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