Has the stock market become too narrow?
AbstractThe price of equity has soared during the past five years, stoking concerns that stocks' prices might have risen too far, too fast. These concerns became more pressing as the values of equities rose much more rapidly than earnings during 1998 and early 1999, lifting stocks' prices to record highs relative to their earnings. Although many indexes of stocks' prices continued to rise sharply in 1998 and 1999, fewer stocks contributed to this performance. The market became more narrow as the running count of stocks whose prices were rising fell behind that for stocks whose prices were dropping. ; This article reviews the valuation of the equities constituting the S&P 500 index between 1968 and 1999. Although the ranks of the winners thinned and the gap separating the performance of the winners from laggers increased, the value of most equities remained high by historical standards. Analysts generally expected most companies' earnings to grow comparatively rapidly in subsequent years. The author suggests that this optimism might be the market's principal weakness. For companies' earnings to support the current valuation of equity, the economy must grow unusually rapidly for the next decade and beyond. The evidence does not yet confirm that growth has increased sufficiently or will last long enough to pay the expected dividends.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of Boston in its journal New England Economic Review.
Volume (Year): (2000)
Issue (Month): Nov ()
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Richard W. Kopcke & Matthew S. Rutledge, 2004. "Stock prices and the equity premium during the recent bull and bear markets," New England Economic Review, Federal Reserve Bank of Boston, pages 63-85.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio).
If references are entirely missing, you can add them using this form.