While the Dow Jones Industrial Average and the S&P 500 Index have been regularly notching record highs, the Nasdaq Composite made news last week, moving past the 4,000 mark for the first time in 13 years.
The last time the index was at these levels was September 2000, toward the end of the dot-com boom. In addition, broader market indices like the S&P 500 continue to post new record highs.
It’s no wonder, then, that some investors are again asking if stocks are in a bubble. In my view, as I write in my new weekly commentary, the answer remains “no.”
While valuations are less compelling than they were a year ago, equities still remain compelling alternatives to bonds and cash. Taking a closer look at the Nasdaq helps illustrate this point. The current trip above the 4,000 level looks quite different from what was happening in 2000 for two reasons:
1. Not frothy valuations. From a valuation perspective, the Nasdaq today trades at around 24x trailing earnings. That’s not cheap, but it’s below the index’s 18-year median of 30x trailing earnings and far below the 150x level the index touched the first time it crossed 4,000 in 1999.