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Time to Worry About Stock Market Bubbles

Time to Worry About Stock Market Bubbles

With relatively little fanfare, the stock market has become expensive again.

While the rest of economy has been growing frustratingly slowly for almost five years, stocks have been rising at a boomlike clip. An investment in the Standard & Poor 500-stock index would have doubled from early 2009 through early 2013 and then gained an additional 18 percent over the last year.

Relative to long-term corporate earnings – and more in a minute on why that measure is important – stocks have been more expensive only three times over the past century than they are today, according to data from Robert Shiller, a Nobel laureate in economics. Those other three periods are not exactly reassuring, either: the 1920s, the late 1990s and in the prelude to the 2007 financial crisis.

Wall Street, of course, can always come up with justifications for high stock prices. Remember: The Internet changes everything. Or: The business cycle has been repealed. Some of the current justifications even have a ring of reality to them.

via Time to Worry About Stock Market Bubbles – NYTimes.com.