Long-term investors shouldn’t harp too much on current conditions.
The Shiller price-to-earnings (P/E) ratio, or CAPE ratio, is a measure of how expensive the S&P 500 (^GSPC 1.16%) is. At the time of this writing, the Shiller P/E ratio is just over 40 — a mark it has hit only once before — in the thick of the dot-com bubble.
Unfortunately, we know how the dot-com bubble played out, with the S&P 500 losing almost half its value. Given what happened last time we saw the S&P 500 this expensive, should investors be worried? The short answer is no.
Image source: Getty Images.
When I say you shouldn’t be worried, it’s not because the S&P 500 is immune from a correction, pullback, or bear market. Each of those has a very real chance of happening at virtually any time.
That said, I don’t think investors should be worried because, even after those events, the S&P 500 has shown its resilience and bounced back each time. Since the bottom of the dot-com bubble, it’s up over 725%. Since the COVID-19 pandemic crash, it’s up around 200%.
S&P 500 Index
Today’s Change
(-1.16%) $-78.83
Current Price
$6721.43
Key Data Points
Day’s Range
$6720.43 – $6812.26
52wk Range
$4835.04 – $6920.34
Volume
3.4B
Admittedly, just because it has happened before doesn’t mean it will happen again. Nothing is guaranteed in the stock market. However, the S&P 500 has a track record that warrants giving it the benefit of the doubt. This is especially true if time is on your side.
Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.