Tags: Kleintop | bubble | stock | PE

LPL's Kleintop: No Bubble Brewing in Stock Market

By    |   Wednesday, 02 April 2014 09:20 AM

Some financial commentators say rising price-earnings (P/E) ratios indicate the stock market has entered bubble territory, but Jeff Kleintop, chief market strategist for LPL Financial, disagrees.

"Looking at valuations, compared to 14 years ago [when the stock market was at the peak of its Internet bubble], the party in the stock market may not be just getting started — but it is not yet close to being over," Kleintop writes in a weekly commentary.

He looked at P/E ratios for all 62 industries of the Standard & Poor's 500 Index compared with March 2000, "the last time a bubble in stock market valuation popped."

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Back then, "16 of the 62 S&P 500 industries, accounting for about 70 percent of the S&P 500 companies' total market value, had P/Es that could be called bubbly," Kleintop maintains. He defines bubbly as a P/E of more than 30 using current fiscal year earnings estimates.

"Now, on March 28, 2014, just four industries out of 62, accounting for less than 4 percent of the S&P 500's market value, have P/Es over 30," Kleintop notes.

And the overall S&P 500 P/E is now just over 16, a bit above the long-term average, but only half the level of March 2000, he adds.

"At any given time, there are always some bubbly valuations among industries and stocks that are hot."

CNBC commentator Jim Cramer doesn't think stocks are in a bubble either. He notes that the best-performing stocks in the Dow Jones Industrial Average during the first quarter were old-school stalwarts Caterpillar, Merck and Microsoft.

"If you look at the makeup of [stock gains in] the last quarter, it was not the stocks that we thought were bubblicious," Cramer states.

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InvestingAnalysis
Some financial commentators say rising price-earnings (P/E) ratios indicate the stock market has entered bubble territory, but Jeff Kleintop, chief market strategist for LPL Financial, disagrees.
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2014-20-02
Wednesday, 02 April 2014 09:20 AM
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