Nasdaq may not be cheap but it’s far from TMT bubble territory argues Blackrock’s Koesterich

8th December 2013

US stock prices are not in bubble territory according to BlackRock global chief investment stategist Russ Koesterich. In a recent note, Koesterich notes the recent trend of record closing prices for the Dow and S&P, and the recent milestone for the Nasdaq and says this has caused some investors to ask if stocks are in a bubble.

However, he adds: “In our view, the answer is “no.” While valuations are less compelling than they were a year ago, equities still offer value and remain compelling alternatives to bonds and cash”.

“Taking a closer look at the Nasdaq helps illustrate this point. The current trip above the 4,000 level looks quite different from what was happening in 2000. From a valuation perspective, the Nasdaq today trades at around 24x trailing earnings. That’s not cheap, but it is below the index’s 18-year median of 30x and far below the 150x level it touched the first time it crossed 4,000 in 1999.

“As for the technology sector (still a very heavy component of the Nasdaq, but less so today than 13 years ago), that area of the market is trading around 17x earnings—roughly in line with the broader market and much less than the 67x we saw in 1999”.

“So, simply put, while some areas of the market are looking frothy (we cited U.S. small caps and social media companies last week), today is not 1999 and stocks are not in a broad market bubble”.

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