Bursting the Talk of a Stock-Market Bubble

There's good reason to believe that analysts' forecasts of a 12% increase in earnings next year are on the mark.

I would be wealthy if I had a dime for every time I heard the stock market is in a bubble. The term bubble should be reserved for assets trading for at least twice their true value, based on such fundamental factors as earnings, dividends and interest rates. For example, the U.S. stock market was just entering a bubble early in 2000, when Standard & Poor’s 500-stock index reached 31 times earnings, nearly twice its historical average. Tech stocks, many of which sported price-earnings ratios in the triple digits, were already in bubble territory.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

To continue reading this article
please register for free

This is different from signing in to your print subscription

Why am I seeing this? Find out more here

Jeremy J. Siegel
Contributing Columnist, Kiplinger's Personal Finance
Siegel is a professor at the University of Pennsylvania's Wharton School and the author of "Stocks For The Long Run" and "The Future For Investors."