While a correction in U.S. equities may be coming, the market doesn’t appear to be in bubble territory yet, says BCA Research.
According to a research note from BCA’s U.S. investment strategy service, concerns of a bubble in U.S. stocks are premature. “Today’s valuations do not resemble the excesses that were inescapably apparent in the 1999-2000 equity bubble,” it says.
Back then, it says, “large-cap tech stocks, achieved valuations that dwarfed disregarded old-economy small-caps. Even old-economy mega-caps went along for the ride, trading at levels that hobbled their performance for several years afterwards.”
While it concedes that equity markets are “surely somewhat frothy”, and that consumer tech businesses “are commanding stupendous valuations”, despite what it says are “dubious long-run profitability outlooks”; BCA maintains that “today’s landscape does not compare to 1999.”
Overall, the S&P 500 is trading at 15.6 times calendar year 2014 earnings, it reports, which is “60% below its peak”.
“The bottom line is that although vigilance is warranted (indeed, a correction may be in the offing), there is room for the bull market to run,” it concludes.