NEW YORK (TheStreet) -- Can we just stop with the bubble talk? Please!
It's getting old seeing headline after headline online and on TV about how equities are in a bubble.
3D printing? Bubble.
Solar stocks? Bubble.
Social media? Bubble.
^IXIC data by YCharts While still steep, one can quickly decipher the price appreciation on the right side of the chart as being much more gradual than the rocket ship-like price action on the left side.
To each their own though, I suppose. If investors want to speculate that we're in a bubble, then go ahead and short the market. But rest assured, the market is not in a bubble. Eric D. Nelson, CEO of Servo Wealth Management, had this to say regarding the market's valuation in November:
"For the recent ten-year period, investment returns have been healthy despite the debilitating setback in 2008. The US Total Stock Index earned almost 8% per year [from Nov. 2003 to Oct. 2013]. But this is far from an alarming rise in prices, as the average over the previous 75 years was 1.7% higher, at +9.6% per year. So far, so good. If lower-than-average returns have created a market bubble, that would certainly be the first time."Regarding the valuation of the S&P 500
"The forward 12-month P/E ratio for the S&P 500 now stands at 15.0, based on yesterday's closing price (1790.62) and forward 12-month EPS estimate ($119.26). This is the highest forward 12-month P/E ratio logged by the S&P 500 in more than four years (September 2009)." "On the one hand, the index is now trading above both the 5-year (13.0) and 10-year (14.0) average P/E ratios. On the other hand, it is still trading below the 15-year average P/E ratio (16.2), and is not close to the peak P/E ratio of 25 recorded in the late 1990's and early 2000's."There is, however, some concern, such as the record levels of margin debt at the New York Stock Exchange. Margin is great, until it's not. One foul swoop lower in the overall markets and investors who have their accounts levered to the tilt are forced to liquidate their long positions, adding even more downward pressure to the markets. Equities, though, aren't overvalued and over-owned at current levels. The term "bubble" is easy to throw around any time we have a strong bull market, such as we've had this year.
It's only when the market is hitting truly insane, unimaginable levels that might mean we're in a bubble. Levels that force investors to say, this is so completely idiotic and stupid, but I have to buy. When everyone is talking about how much money they make day trading stocks of companies that have no business being a public company -- or even a company, period -- then there might be a bubble on our hands.
Does it mean today's market can't go down from current levels? Of course not. It's only healthy for a bull market to have corrections and pullbacks along the way. And a deep correction from this point wouldn't prove that we were in a bubble. A decline is expected, but no one truly knows when it will happen.
I'm not arguing that we can't decline, but one thing's for certain folks: This is not a bubble. -- Written by Bret Kenwell in Petoskey, Mich. Follow @BretKenwell
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts