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AI optimism drives the S&P 500 price book ratio to records, surpass DOT-COM levels.
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High ratings reflect the expectations for AI-driven income.
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Although the level of the ratio is aware, it does not require that shares are in a bubble.
Bulls of the stock market convinced of the power of AI to transform the economy often picks up a quarter of a century ago on comparisons with the DOT-Com bubble. The real profit is already appearing, unlike in the early days of the internet tree – so it is Otherwise this time, things are going to think.
But the strategist of Bank of America, Michael Hartnett, has a message for these investors: “This time it is better to be different.”
Hartnett, who has often expressed skepticism about the bull of the market in recent years, shared a main chart that emphasizes how optimistic investors have become about the impact that AI will have. It shows the price-book ratio of the S&P 500, which measures the total market capitalization of the voters of the index compared to their total assets minus obligations.
The valuation measure is located at a record high of 5.3, to which the 5.1 level is seen in March 2000, on the peak of the Dot-Com bubble.
Other classic valuation measures show market foam in relation to history. Hartnett, for example, also shared a graph with the 12-month price-win ratio of the S&P 500. Besides August 2020, it is at the highest level since the DOT-COM era.
And the Shiller cyclically corrected price-gain ratio, which measures the current prices at a 10-year progressive average of the profit, is located at comparable levels such as 1929, 2000 and 2021.
High ratings reflect high expectations for future income. Sometimes those expectations appear to be increased and the prices correct, but they do not require a bubble scenario. So far, many AI companies have constantly beaten the expectations of the profit, which suggests that optimism can be justified.
Ratings are also better predictors of average long -term returns than performance in the short term, and a view of Wall Street on which the market will go in the coming months differ. Although caution has been brought, many strategists continue to increase their S&P 500 price goals at the end of the year.
Earlier this week, Rick Rieder, the Chief Investment Officer of Global Fixed Income at BlackRock, said that the market is in the “Best Investment Environment ever” thanks to factors such as a strong demand for shares, threatening tariff reductions and recent boosts in productivity and profit growth.
However, if the market starts to relax, Hartnett said that he sees bonds and non-American shares benefit. Examples of funds that offer exposure to these transactions are the Ishares Core US Aggregate Bond ETF (AGG) and the Vanguard FTSE All-World ex-USF (FEU).
Read the original article about Business Insider
