Despite the strong two-day rally to finish the month, January was the worst start to the year for the Nasdaq (down 19% peak to trough) since 2008. And if not for that two-day rally, it would have been the worst start for the Nasdaq ever – and ever, as they say, is a very long time. As a result, you might have thought that the decline would have made some progress in normalizing valuations but you would have been wrong. The median stock in the S&P 500 Index is still roughly 20% more expensive than it was pre-pandemic and 70% more expensive than at the peak of the DotCom Mania in 2000.
This article was written by Jesse Felder and originally published by the Felder Report.
Moreover, there are still 60 stocks in the S&P 500 Index that trade at more than 10-times sales. During the depths of the Dotcom bust (almost exactly twenty years ago) after witnessing his own stock price plunge by more than 90%, Sun Microsystem’s Scott McNealy famously suggested this degree of overvaluation was “ridiculous.” By then, the number of stocks trading above this hurdle had fallen from a peak of almost 50 to about a dozen. So if we are now seeing another bust in the most speculative segments of the stock market, it would appear it still has quite a ways to go.