Given the length and duration of this bull market - it will turn 11 years old in five weeks' time with a nearly 400% gain - it's natural that many are looking at previous bull market peaks as a comparison. Simply put, most bull markets failed to reach these levels due to a combination of recessionary or inflationary forces leading to a downturn in the economy and a decline in stock prices.
The one notable exception is the bull market in the 90s which climaxed with the dot-com bubble. There are many similarities between the 90s and the current bull market and some important differences. Both cycles were unusually long and featured low inflation with mid-cycle rate cuts. Both cycles also saw low commodity prices and a strong dollar. There was also domestic political turmoil in the 90s with the former President Bill Clinton impeachment trial which planted the seeds for today's intensely polarized environment.
One clear difference is that the dot-com bubble was marked by much more frenzy and retail participation due to the excitement and optimism of how the Internet would impact corporate profits and the global economy. Although there are pockets of hype in today's market, it's nowhere near the dot-com bubble. In fact, this cycle is unusual in that retail participation has been low and most are choosing to participate in the market via passive investment vehicles.
By the Numbers
Although it's interesting and provides context to examine the individual narratives of each cycle, valuation measures provide a more objective method to compare the two periods. In terms of the price to earnings ratio, the dot-com bubble peaked around 25. It currently is at 19 which is above the long-term average of 15.
Similarly, the S&P 500 Index
The price to sales ratio is sending the same message as the two previous indicators. Valuation is rich but just not as rich as it was in 2000, although the spread is much less when looking at revenue rather than earnings. Currently, the S&P 500's price to sales ratio is 2.3, while it peaked around 2.7 in the dot-com bubble.
When taking into account interest rates, it can be argued that stocks remain quite reasonable at current levels. For example, currently, the S&P 500's dividend yield is basically equal to the yield on the 10-year note. In 2000, the spread between the two was around 600 basis points with most of the contribution coming from bond yields being much higher.