Bulletin
Investor Alert

In One Chart Archives | Email alerts

March 4, 2017, 10:10 a.m. EST

Stop! This is NOT like the dot-com bubble... it’s much worse, according to this chart

Economic, demographic and productivity trends all portend stagnation

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Snap Inc. (SNAP)
  • X
    Dow Jones Industrial Average (DJIA)
  • X
    S&P 500 Index (SPX)

or Cancel Already have a watchlist? Log In

By Shawn Langlois, MarketWatch


Getty

The man behind the iBankCoin blog on Thursday morning asked his readers: “Where were you when Snap ripped off America?”

While his rant focused on the wild valuation the Snapchat parent /zigman2/quotes/205087158/composite SNAP -5.37% reached in its debut, others may see the booming IPO as a last gasp before the bubble pops like it did back in the days of Pets.com and Webvan.

But the truth is, this market climate -- which has seen record runups for the Dow /zigman2/quotes/210598065/realtime DJIA +0.08%  , S&P 500 /zigman2/quotes/210599714/realtime SPX -0.39%  and Nasdaq /zigman2/quotes/210598365/realtime COMP -1.20%   -- is nothing like we saw during the dot-com hey day. By many measures, it’s actually worse, according to numbers crunched this week by 720 Global’s Michael Lebowitz .

“Even though current valuation measures are not as extreme as in 1999, today’s economic underpinnings are not as robust as they were then,” he wrote. “Such perspective allows for a unique quantification, a comparison of valuations and economic activity, to show that today’s P/E ratio might be more overvalued than those observed in 1999.”

In this chart, Lebowitz stacks up the metrics from the years running up to the dot-com explosion versus what we’ve seen since 2012:

Lebowitz acknowledged, of course, that equity valuations back in 1999 were, as proven after the fact, “grossly elevated.”

But when put up against a backdrop of economic factors, he says those numbers appear to be relatively tame compared with today.

“Some will likely argue with this analysis and claim that Donald Trump’s pro-growth agenda will invigorate the outlook for the economy and corporate earnings,” he wrote. “While that is a possibility, that argument is highly speculative as such policies face numerous headwinds along the path to implementation. Economic, demographic and productivity trends all portend stagnation.”

His bottom line: “There is little justification for paying such a historically steep premium for what could likely be feeble earnings growth for years to come.”

Meanwhile, Snapchat’s surging market capitalization just surpassed that of American Airlines /zigman2/quotes/209207041/composite AAL -0.18%  and CBS Corp. . 

/zigman2/quotes/205087158/composite
US : U.S.: NYSE
$ 23.42
-1.33 -5.37%
Volume: 25.16M
May 16, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$40.50 billion
Rev. per Employee
$779,048
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
32,223.42
+26.76 +0.08%
Volume: 332.70M
May 16, 2022 5:14p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
4,008.01
-15.88 -0.39%
Volume: 2.21B
May 16, 2022 5:14p
loading...
/zigman2/quotes/210598365/realtime
US : Nasdaq
11,662.79
-142.21 -1.20%
Volume: 4.29M
May 16, 2022 5:16p
loading...
/zigman2/quotes/209207041/composite
US : U.S.: Nasdaq
$ 16.55
-0.03 -0.18%
Volume: 25.20M
May 16, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$10.77 billion
Rev. per Employee
$281,791
loading...

Shawn Langlois is an editor and writer for MarketWatch in Los Angeles. Follow him on Twitter @slangwise.

This Story has 0 Comments
Be the first to comment
More News In
Markets

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.