High PE ratio = bubble?

Jul 9, 2021 43 Comments

Worried about current PE ratio for SP500 since I recently invested a considerable amount of my NW to an index fund which essentially tracks it. Keeps me stressed.

Any thoughts on when high PE ratios can be harmless? Historically most crashes were preceded by PE ratios over 25. Not sure if all PE ratios over those values lead to crashes though

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  • Iโ€™m just stockpiling money for now
    Jul 9, 2021 4
  • Dropbox
    jUVy26

    Go to company page Dropbox

    jUVy26
    Yes, it's a bubble. The market is a game of musical chairs right now. If the Fed does not continue an aggressive campaign of QE and ZIRP there will be a major crash. If they continue, there will be major inflation.

    Good luck. The economic policy of the US has been to steal as much money from their children as possible. They've run out of ways to prop this up.
    Jul 9, 2021 3
    • Depends on when you think everything is going to go to shit, Iโ€™m betting within 12-18 months so I can take the inflation hit holding cash and putting it in when shit crashes
      Jul 9, 2021
    • Dropbox
      jUVy26

      Go to company page Dropbox

      jUVy26
      @magicpip It's a shitty situation. The risk-free rate of return is basically nothing. It's equivalent to the Fed holding a gun to everyone's head to put your money in a casino. I've responded by anticipating either massive inflation or deflation. I'm holding equal parts cash and a mortgage, with the down payment in equity.

      There really are not a lot of good answers to this question. Nobody knows what's going to happen, including the Fed.
      Jul 9, 2021
  • If you are stressed about market ups & downs in short term, you shouldnโ€™t be investing in market at all!
    Market goes up, comes down..in the long term it always goes up..
    Jul 9, 2021 3
  • Micron / Eng
    Eng$

    Go to company page Micron Eng

    PRE
    Micron Technology
     Eng$
    I agree the PE Ratios have been ridiculous Iโ€™m hoping we donโ€™t see another Dotcom crash
    Jul 9, 2021 1
  • Amazon
    YmnT12

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    YmnT12
    1. PE ratio grew over time in US market due to many factors (shift towards big tech, 30 year bond bull market and declining yields, etc.)
    2. Analysts are predicting highest ever GDP growth in recent decades in US, and expects rising earnings in next year will cover for lower PE ratio. But I doubt that some of non-tech industries will do THAT well over next year.
    3. Unless you are trying to retire in next 5 years, you should bet for long term growth of US economy. (Unless you think US will collapse in next decade according to some work visa guys on blind)
    Most people work in tech companies here and you should realize that big tech companies are literally printing money from all around the world (proof: they are paying tons of TC for degenerates on this app) there's higher chance that these companies will be more successful in next 10 years than any other investment you choose, in my opinion.

    Whether this is bubble or not - no one knows. People said there was S&P bubble 5 years ago. Since then, SPX grew +100%. In other words, SPX has to crash 50% from current price to just go back to price 5 years ago, and people who called bubble 5 years ago missed out. No one really knows direction of short term moves of stock market, and that's why most people invest for long term. If you have clear insight that market will crash, you can invest in option products and retire on the day market crashes ๐Ÿ˜‰
    Jul 9, 2021 2
    • OP
      Quality post, thanks.

      I am quite bullish in terms of lasting US supremacy, but at the same time my main goal is to buy a home in Europe during the next decade. I would of course just reset to hold long term in a major crash/correction event, but it would be quite frustrating, since my time horizon is around 5y.

      A potential solution might be to change to the ETF versions of the index funds I'm invested in right now such that I can set stop loss orders, but of course it entails its own risks as well.
      Jul 10, 2021
    • Amazon
      YmnT12

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      YmnT12
      Of course everyone has different target timing in investment. 5 year time horizon would be higher risk if you put all of your money into stock, but at the same time cash is going down in valuation by a lot with economic recovery and inflation.
      Managing your risk with mixture of allocation in stock, gold (or materials), and cash really depends on your situation. Either try to put time into your own research (lots of resources online nowadays) or professional investment advisor wouldn't be bad in this case
      Jul 10, 2021