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1999
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2000
Mar
S&P 500 CAPE Ratio 1918-1996
By the end of that year, stocks had become more expensive than at any time in history. Take a look at the top chart below... That was a surely a sell signal – right? Stocks were even more expensive than right before the 1929 peak! In hindsight, it was not a sell signal. Instead, what happened next shocked all rational people...
Stocks went up – again – in 1998. And once again, it was a BIG gain. The S&P 500 went up 29%. And tech stocks went up even more – the Nasdaq soared 40% in 1998. This is when the last great Melt Up started. Investors who had been skeptics got religion. The late 1990s had taught folks not to worry about high valuations. This time was different, right? 30 25 20 15 10 5
Stocks reach extreme valuation levels in 1995
1924
1930
1936
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1972
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1984
1990
1996
Animal spirits kicked in. The excitement was palpable. And things got even crazier... In the late 1990s, many of my buddies were leaving their “real” jobs and joining dot-com companies. They got stock options for changing jobs. On paper, they were worth more than I could imagine. And I started to feel like the fool for staying on the sidelines instead of joining them. Stocks just kept going higher... The Nasdaq soared a ridiculous 86% in 1999. Take a look at the bottom chart to the left. What happened
S&P 500 CAPE Ratio 1919-1997
Stocks hit all-time expensive levels in 1997
30
25
20
15
10
5
1925
1931
1937
1943
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1997
S&P 500 CAPE Ratio 1920-2000
Stock valuations soared before peaking in 2000
40
35
30
25
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5
1923
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1972
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20 November 2018
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