The US stock market is on the verge of a triple top. Yesterday, the S&P 500 passed the 1,552 reached at the height of the dotcom bubble and is just 1.4 per cent below its 2007 peak.
The 13 years since 2000 have been unlucky for shareholders and it is psychologically normal to focus on recent history. But look a bit further back and another comparison is intriguing: that with 1987.
US equities are valued about where they were in March of 1987 at 13.3 times forward earnings. Share price moves over the past two years look very similar to the market’s gains then, too. The US economy is almost four years into an expansion (if a rather shaky one), just a little less than it was then. Government bond yields are again rising (although from much lower levels today). Corporate bond spreads are almost identical, as investors hoover up all the corporate debt they can. And inflation is below 2 per cent, just as it was then.
