That’s the opinion of at least one analyst who points out that if stocks reach the same valuation level they reached during the two greatest stock market bubbles in U.S. history, the Dow could hit 30,000. I don’t know if that should make one optimistic or frightened. MarketWatch has the story.
In a note to clients, McMillan asks the obvious: Where does the Dow go from here, after cracking that 21,000 ceiling? Given stocks are in uncharted waters, he looks for a steer in the Shiller’s CAPE ratio, which compares equity prices with earnings over the past 10 years to gauge frothiness in the market.
McMillan notes that the gauge — which he admits is not flawless — shows the current P/E level at 27.93. As he points out, that’s higher than it’s ever been, apart from the 32.56 hit in 1929 and 44.20 in 1999.
He concludes that if markets follow the pattern of 1999, they could rise nearly another 60%. That would bring the Dow to over 30,000, and the S&P 500 above 3,500. Even if markets “just” went to 1929 levels, the Dow would top 24,000 and the S&P 500 move past 2,700, the Commonwealth financial chief says.
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Jeremy Jones, CFA
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