S&P 500 IndexEducation
Bubble or no bubble that is a question???
In this article, I do not provide my analysis..!
I just present my observation and provide a glimpse of an article:
Asset Bubbles Through History:
An asset bubble occurs when the price of a financial asset or commodity rises to levels that are well above either historical norms, the asset's intrinsic value, or both. The problem is that since the intrinsic value of an asset can have a very wide range, a bubble is often justified by the flawed assumption that an asset's intrinsic value has skyrocketed, meaning the asset is worth much more than it fundamentally is.
Some bubbles are easier to predict than others. When it comes to the stock market, traditional valuation metrics can be used to identify extreme overvaluation. For example, an equity index that is trading at a price-to-earnings ratio that is twice the historical average is likely in bubble territory, though more analysis may be needed to make a conclusive determination. (Investopedia)
for further reading:
https://www.investopedia.com/articles/personal-finance/062315/five-largest-asset-bubbles-history.asp
The P/E data source NASDAQ website!
My observations:
1- P/E trend is downward since June 2021 when we reached 45.65, 3x of the historical mean/median!
2- current P/E is below the pre-pandemic crash level of 26.42..!
3- Althogh big companies beat their expected earnings, they are trading below their all times high..!(except 5 oil and gas companies)
The answer to this question is up to the audience..!
Hint:
Understanding Reflexivity
The reflexivity theory states that investors don't base their decisions on reality, but rather on their perceptions of reality instead. The actions that result from these perceptions have an impact on reality, or fundamentals, which then affects investors' perceptions and thus prices. The process is self-reinforcing and tends toward disequilibrium, causing prices to become increasingly detached from reality. Soros views the global financial crisis as an illustration of the theory. In his view, rising home prices induced banks to increase their home mortgage lending and, in turn, increased lending helped drive up home prices. Without a check on rising prices, this resulted in a price bubble, which eventually collapsed, resulting in the financial crisis and Great Recession. (Investopedia)
Best,
Moshkelgosha
DISCLAIMER
I’m not a certified financial planner/advisor, a certified financial analyst, an economist, a CPA, an accountant, or a lawyer. I’m not a finance professional through formal education. The contents on this site are for informational purposes only and do not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my posts is appropriate for you or anyone else. By using this site, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site.
I just present my observation and provide a glimpse of an article:
Asset Bubbles Through History:
An asset bubble occurs when the price of a financial asset or commodity rises to levels that are well above either historical norms, the asset's intrinsic value, or both. The problem is that since the intrinsic value of an asset can have a very wide range, a bubble is often justified by the flawed assumption that an asset's intrinsic value has skyrocketed, meaning the asset is worth much more than it fundamentally is.
Some bubbles are easier to predict than others. When it comes to the stock market, traditional valuation metrics can be used to identify extreme overvaluation. For example, an equity index that is trading at a price-to-earnings ratio that is twice the historical average is likely in bubble territory, though more analysis may be needed to make a conclusive determination. (Investopedia)
for further reading:
https://www.investopedia.com/articles/personal-finance/062315/five-largest-asset-bubbles-history.asp
The P/E data source NASDAQ website!
My observations:
1- P/E trend is downward since June 2021 when we reached 45.65, 3x of the historical mean/median!
2- current P/E is below the pre-pandemic crash level of 26.42..!
3- Althogh big companies beat their expected earnings, they are trading below their all times high..!(except 5 oil and gas companies)
The answer to this question is up to the audience..!
Hint:
Understanding Reflexivity
The reflexivity theory states that investors don't base their decisions on reality, but rather on their perceptions of reality instead. The actions that result from these perceptions have an impact on reality, or fundamentals, which then affects investors' perceptions and thus prices. The process is self-reinforcing and tends toward disequilibrium, causing prices to become increasingly detached from reality. Soros views the global financial crisis as an illustration of the theory. In his view, rising home prices induced banks to increase their home mortgage lending and, in turn, increased lending helped drive up home prices. Without a check on rising prices, this resulted in a price bubble, which eventually collapsed, resulting in the financial crisis and Great Recession. (Investopedia)
Best,
Moshkelgosha
DISCLAIMER
I’m not a certified financial planner/advisor, a certified financial analyst, an economist, a CPA, an accountant, or a lawyer. I’m not a finance professional through formal education. The contents on this site are for informational purposes only and do not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my posts is appropriate for you or anyone else. By using this site, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site.
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