Surging U.S. Stocks Echo Dot-Com Rally With Cheaper P/E

Every day, the American bull market looks more and more like the dot-com bubble of the late 1990s. Except when it comes to valuations.

The Standard & Poor’s 500 Index (SPX) jumped above 2,000 today and the Nasdaq Composite Index is within 10 percent of a record reached in March 2000, a time when Inc. was worth more than $150 million. Investors have seen annualized returns of 24.5 percent since March 2009, compared with 27.1 percent over an equal amount of days ending March 24, 2000, the peak of the Internet rally, according to data compiled by Bloomberg.

Stocks are catching up to the pace of more than a decade ago amid record profits, near-zero interest rates and economic growth that’s expected to accelerate. While the dot-com bubble peaked with the S&P 500 trading at close to 30 times annual earnings of its companies, the valuation is about 19 times now, data from S&P Dow Jones Indices show.

“We’re on the expensive side of fair value, but certainly not in the bubble place they were in the 2000 period or in a place that concerns us,” Ed Hyland, an Atlanta-based global investment specialist at JPMorgan Chase Private Bank, said in a phone interview. The firm oversees about $1 trillion. “There is potential for the market to go higher.”

Durable Goods

The S&P 500 rallied 0.3 percent to 2,004.16 as of 10:57 a.m. in New York after a report showed the biggest ever jump in durable-goods orders and consumer confidence unexpectedly increased. The Chicago Board Options Exchange Volatility Index, known as the VIX, added 0.9 percent to 11.81.

Five years of gains have driven the S&P 500 up 195 percent, compared with a 236 percent advance over the comparable period ended in March 2000. With the Federal Reserve calling valuations in smaller biotechnology and social-media companies “stretched” and mega-deals resurfacing, concern that prices are too high is growing.

Over the past three years, investors have seen a flood of technology and Internet companies go public, including King Digital Entertainment Plc, Yelp Inc. and Twitter Inc. Alibaba Group Holding Ltd., the Chinese e-commerce company, is working on an initial public offering that may be the biggest in U.S. history.

The dot-com bubble was marked by unprofitable Internet companies selling shares for the first time, such as, which had a sock puppet mascot and raised $82.5 million in February 2000. The company has since gone out of business.

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